MemoriaAnnual Report Anual 2019 CONTACT Hendaya 60, Floor 14, Office 1401, Las Condes, Santiago CP 7550188, Casilla 186 - Correo 34, Santiago Telephone (562) 2588 6000 Fax (562) 2331 5153 www.csav.com
SHAREHOLDER SERVICES DCV Registros S.A. Huérfanos 770, Floor 22, Santiago, Chile. Telephone: (562) 2393 9003 [email protected]
INVESTOR RELATIONS Felipe Rodríguez Investor Relations Telephone: (562) 2588 6047 [email protected] ANNUAL REPORT 2019 Index
1. 2. MAIN FIGURES 04 OUR COMPANY 10
CHAIRMAN’S REMARKS 06 CSAV Profile 13 Corporate Governance 14 History 18 Ownership and Control 22
2 Compañía Sud Americana de Vapores S.A. 3. 4. 5. OUR BUSINESS 24 ADDITIONAL INFORMATION 68 FINANCIAL REPORTS 98
Container Shipping Industry 26 Basic Information 70 Financial Statements 99 Container Shipping Business 34 Articles of Incorporation 70 Management Analysis 216 Vehicle Transport Industry and Business 36 Properties and Facilities 70 Summary Financial Statements 247 Consolidated Results 40 Regulatory Framework 71 Statement of Responsibility 254 Risk Management 44 Trademarks, Patents and Licenses 74 Investment and Financing 52 Stock Market Statistics 75 People 56 Dividend Policy and Payment 76 Environmental Management 60 Compensation 77 Directors’ Committee Annual Report 80 Board Training 87 Material Events 88 Corporate Structure 90 Information on Associates and Subsidiaries 91 Summary of Subsidiary Ownership 96
2019 Annual Report 3 MainAs ofFigures December 31, 2019
CSAV INDICATORS
CSAV Assets CSAV Equity CSAV Net Income 2,517 2,224 125 US$ million US$ million US$ million
CSAV’s Interest CSAV’s Investment in in Hapag-Lloyd Hapag-Lloyd over Total Assets 27.8% 86.1%
CONTAINERS SHIPPED
Hapag-Lloyd Hapag-Lloyd Hapag-Lloyd Volume Transported Revenue EBITDA 12 14,115 2,223 million TEUs US$ million US$ million
VEHICLES SHIPPED
CSAV CSAV CSAV Volume Transported Revenue EBITDA 327 93 20 thousand tons US$ million US$ million
4 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 5 Chairman’s Remarks
In 2019, CSAV achieved its best result since the merger of its container shipping business with Hapag-Lloyd in 2014, with net income of US$ 124.6 million, representing growth of 585% over the previous year.
DEAR SHAREHOLDERS:
Despite the significant challenges faced As we have explained on other occasions, by our industry in 2019, we can be satisfied the 2008 crisis left the industry with many with our good results and the long-term shipbuilding orders and global growth in prospects for the Company. the container shipping business below traditional trends, leading to growth close The industry has been operating under to that of global GDP. Accordingly, this highly demanding global conditions. triggered numerous consequences for Weak global economic growth—below the industry, such as mergers, suspended 3% for the first time in ten years—was investments, large operating alliances, compounded by the “tariff war” between bankruptcy for some companies and other China and the United States, with import consequences. Today we can be reasonably tariffs that directly impacted our business. certain that in general the key industry Furthermore, shipping companies indicators measuring balance, such as have had to adapt to the new IMO 2020 comparing current supply with demand, emissions standard, especially during and comparing the forecast orderbook with the last quarter of the year, as it became estimated demand growth, are aligned and effective worldwide from January 1, do not indicate any destabilization risks. 2020. This process is driving the largest environmental transformation within shipping companies.
6 Compañía Sud Americana de Vapores S.A. At the beginning of 2020 the orderbook Hyundai Merchant Marine joined THE related to the performance of Hapag- represented less than 10% of the total Alliance, which is the global alliance that Lloyd’s container shipping business, which fleet. This indicator measures predicted Hapag-Lloyd belongs to, thus making it reported its highest net income since 2010 supply growth over the next two or three stronger and extending it through to 2030. of US$ 418 million. This figure is 670% years, and it has reached a record low, higher than in 2018. Operating cash flows which confirms the success of industry In 2019, CSAV achieved its best result generated during the year reduced its consolidation efforts, through mergers since the merger with Hapag-Lloyd in financial debt by US$ 981 million, which and acquisitions, and the benefits of 2014, with net income of US$ 124.6 million, included prepaying a US$ 450 million bond operational coordination achieved by representing growth of 585% over the scheduled to mature in 2022. the three global alliances. In particular, previous year. This increase is mainly
2019 Annual Report 7 These achievements are the result of has been fundamental in aligning the several years of hard work to build a highly company’s strategic objectives. Our efficient company, which incorporates current shareholder agreement expires the synergies arising from the mergers at the end of 2024 and the objective of with CSAV in 2014, with the United Arab achieving 30% before that date is related Shipping Company in 2017, and cost-cutting to CSAV retaining its “grandfather rights”. programs that had already achieved US$ Even if we are not included in the controlling 1,200 million in annual savings by 2019, shareholder agreement, these rights grant to which a further US$ 200 million will be us the option to buy more shares and reach added by 2021. These accomplishments 51% of the company’s capital, without the have positioned HLAG as one of the most obligation to make a public offer for all efficient shipping lines in the industry. the issued shares. Notwithstanding our commitment to extend the controlling Hapag-Lloyd has continued to deploy a shareholder agreement beyond 2024, we strategic plan initiated in 2018 with targets believe that this option leaves CSAV in a for 2023, in order to strengthen its long- better position to achieve its objective of term competitive position. Its objectives maintaining influence and control over are to become a leading company in terms Hapag-Lloyd’s future. of service quality and set itself apart for its customer focus, to maintain its We have selectively acquired shares on strong global position especially in niche the stock market, in order to achieve this and expanding markets, to improve the shareholding objective. At the beginning profitability of its business supported of 2020, we reached 30% by acquiring by further advances in digitalization a significant package from the Qatar and automation and to increase its Investment Authority (QIA) after a long organizational agility. negotiation. Total payments including this latest acquisition total US$ 450 million, The objectives defined by CSAV’s Board which has taken our holding from 25.86% include the important achievement of to 30%. This has been financed with bonds attaining a 30% interest in Hapag-Lloyd. issued by CSAV and bridge loans mainly As widely known, CSAV controls this granted by our controlling shareholder, German shipping company together with Quiñenco. Therefore, CSAV’s Board has the City of Hamburg and Kühne Maritime. communicated through a material event Our influential and active participation that it will have to increase its capital, which
8 Compañía Sud Americana de Vapores S.A. is expected to take place during 2020, introduced LNG to fuel a vessel in 2019. depending on capital market conditions for However, to a large extent it has chosen debt and equity. to buy the better quality fuel and seek a mechanism to transfer this extra cost to its We decided to terminate the vehicle customers. This is undoubtedly one of the transport (RoRo) business towards most important challenges for the year and the end of 2019 in order to focus the overcoming it will be important in order to Company’s management on our main meet our financial objectives. asset, our investment in Hapag-Lloyd. This business has been a longstanding part of A challenge with another order of CSAV, although it no longer represents a magnitude is of course the COVID-19 significant part of our financial assets or outbreak throughout the world, which has performance. very strongly affected Asia, Europe and the U.S., and these are very important markets I would like to take this opportunity to for our global business. Although it is still thank our RoRo customers for trusting and too early to estimate the impact of this preferring our services in this business pandemic on our business, the Company segment for many years, as well as all our has focused on safeguarding the health of employees for their valuable professional our employees, maintaining operational and personal dedication and commitment, continuity and improving our liquidity, especially in sustaining the Company as without affecting the flexibility of our cost an active, competitive and highly visible structure. operator during these last few years. Finally, I would like to thank our Looking ahead to the challenges in 2020, shareholders and employees for their it would appear that complying with the tremendous commitment and dedication IMO 2020 standard is fundamental. This to the growth of our Company. new regulation requires the industry to use more refined and significantly more Yours sincerely, expensive fuel, effective as of January. Hapag-Lloyd’s strategy to tackle this problem included retrofitting some of its vessels with scrubbers that comply Francisco Pérez Mackenna with the standard, and a pilot plan that Chairman of CSAV
2019 Annual Report 9 Our Company
10 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 11 MAIN CONTAINER BUSINESS INDICATORS 1.7 239 2.5 121 million TEUs of container ships million TEUs of transport services transport capacity container capacity
6 392 129 12,996 regional centers sales offices countries employees
12 Compañía Sud Americana de Vapores S.A. CSAV Profile
Compañía Sud Americana de Vapores S.A. is a shipping company based in Chile. Its principal business is container shipping, through its interest acquired in 2014 in the German company Hapag- Lloyd AG, the world’s fifth-largest shipping line in this segment.
CSAV is a principal shareholder with a 27.79% interest in the German company as of December 31, 2019. It is party to a shareholder agreement that controls approximately 71% of that company. Thus, CSAV exercises significant influence and joint control over Hapag-Lloyd, so it is classified in its financial statements as a joint venture. Its investment in Hapag-Lloyd represented 86.1% of the Company’s consolidated assets as of December 31, 2019. Furthermore, it negotiated an increase in its interest in Hapag-Lloyd during 2019 and this process was completed in January 2020, leaving CSAV with a 30% interest in Hapag-Lloyd.
With a fleet of 239 container vessels and total capacity of 1.7 million TEU as of December 31, 2019, Hapag-Lloyd boasts a portfolio of 121 services and a highly diversified, well- balanced logistics network, operating in 129 countries and along the most important global shipping routes. Furthermore, it is the main member of THE Alliance, one of three alliances that together represent more than 90% of global shipping capacity on east- west routes.
CSAV was founded in 1872 and is a publicly traded company listed on the Chilean stock exchange since 1893.
2019 Annual Report 13 Corporate Governance
CSAV’s corporate governance is led by its Board of Directors, which consists of seven members elected by shareholders at the annual general meeting, in accordance with Art. 31 of Law 18,046 on Corporations.
GOVERNANCE STRUCTURE
Board of Directors
Director’s Committee
Chief Executive Officer
Legal and Compliance Finance and Administration Controller Automobile Division Department Department
Functional dependency Organizational dependency
14 Compañía Sud Americana de Vapores S.A. BOARD OF DIRECTORS
The most recent elections took place FRANCISCO PÉREZ MACKENNA ANDRÓNICO LUKSIC CRAIG on April 26, 2019, electing members for Chairman Vice-Chairman a three-year term. On August 23, 2019, Commercial Engineer Businessman following the unfortunate passing of Mr. Board member since April 2011 Board member since April 2013
Gonzalo Menéndez Duque, the Board of Chilean ID number: 6.525.286-4 Chilean ID number: 6.062.786-K Directors appointed Mr. Alberto Alemán Zubieta to replace him, in accordance with ALBERTO ALEMÁN ZUBIETA CHRISTIAN BLOMSTROM BJUVMAN Article 32 of Law 18,046, the Corporations Director Independent Director Act. Until that date he had served as an Civil Engineer Civil Engineer advisor to the Board. Board member since August 2019 Board member since April 2019
The Company’s bylaws do not require Chilean ID number: 48.214.110-2 Chilean ID number: 10.672.019-3 alternate directors. The Company’s General Counsel, Mr. Edmundo Eluchans Aninat, HERNÁN BÜCHI BUC ARTURO CLARO FERNÁNDEZ serves as secretary to the Board. Director Director Civil Engineer Agricultural Engineer
Board member since April 2012 Board member since April 1987
Chilean ID number: 5.718.666-6 Chilean ID number: 4.108.676-9
JOSÉ DE GREGORIO REBECO SECRETARY TO THE BOARD
Director Edmundo Eluchans Aninat
Civil Engineer General Counsel
Board member since April 2012 Chilean ID number: 12.089.134-0
Chilean ID number: 7.040.498-2
2019 Annual Report 15 DIRECTOR’S COMMITTEE
CSAV’s Directors’ Committee was formed in accordance with Art. 50 bis of the Corporations Act and has an independent director and two other directors selected by him.
MEMBERS
COMMITTEE CHAIRMAN DIRECTOR
Christian Blomstrom Bjuvman Arturo Claro Fernández
Independent Director José De Gregorio Rebeco
Following the unfortunate passing of Mr. Gonzalo Menéndez Duque, Mr. Christian Blomstrom Bjuvman, in his capacity as the only independent director of CSAV, appointed Mr. José De Gregorio to replace Mr. Gonzalo Menéndez Duque, as the third member of the Directors’ Committee on July 26, 2019, in accordance with Article 50 bis, paragraph 9, of Law 18,046, the Corporations Act. The directors Christian Blomstrom Bjuvman and Arturo Claro Fernández have been members of the Directors’ Committee since April 26, 2019.
The Company’s General Counsel, Mr. Edmundo Eluchans Aninat, acts as its secretary. He is also the Company’s Legal Compliance Officer and Crime Prevention Officer. The following individuals regularly attend Directors’ Committee meetings with a right to speak: Óscar Hasbún Martínez, Chief Executive Officer; Roberto Larraín Sáenz, Chief Financial Officer; and Claudio Salgado Martínez, Controller, who is also responsible for risk management.
The additional information chapter of this annual report contains the Directors’ Committee’s 2019 management report.
16 Compañía Sud Americana de Vapores S.A. SENIOR EXECUTIVES
CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER
Óscar Hasbún Martínez Roberto Larraín Sáenz
Commercial Engineer Civil Engineer
Appointment: March 31, 2012 Appointment: September 3, 2018
Chilean ID number: 11.632.255-2 Chilean ID number: 9.487.060-7
SENIOR VICE PRESIDENT, AUTOMOBILES CHIEF FINANCIAL OFFICER
Hernán Martínez Fermandois Roberto Larraín Sáenz
Civil Engineer Civil Engineer
Appointment: February 27, 2015 Appointment: September 3, 2018
Chilean ID number: 14.243.645-0 Chilean ID number: 9.487.060-7
2019 Annual Report 17 History
Service expansions and new business. New trades were established Refrigerated cargo to Northern Europe, Services expanded to services launched. the Far East, Japan, New York. Opening the After the end of the the Mediterranean, the Panama Canal allowed World War II, the Americas, the Pacific services to expand, holds of some vessels and South East Asia, which was intensified were converted into with tremendous by the withdrawal of refrigerated chambers growth in specialized European vessels at and began transporting services for refrigerated the beginning of World fruit on regular cargo, vehicles and bulk War I. services. cargo. 1872 1914 1938 1945 1961 1984 Founding The Company Services expanded to Air and maritime was founded in Europe. The great crisis agency business began. Valparaíso on October of 1929 was followed SAAM (Sudamericana 4, 1872, following the by the addition of Agencias Aéreas y merger of Compañía three vessels, and the Marítimas S.A.) was Chilena de Vapores and service to New York created. Compañía Nacional de was strengthened and Vapores. extended to Europe. Subsequently, another three vessels were incorporated.
18 Compañía Sud Americana de Vapores S.A. Volumes increased on North-South trades. CSAV acquired a controlling interest in Brazil’s Companhia Financial restructuring. Libra de Navegaçao CSAV undertook S.A. and Uruguay’s financial restructuring Montemar Marítima Port operator following the subprime S.A., which operated business began. The crisis in 2008, which container shipping Company was awarded included capital services between South concessions to operate increases, renegotiating America’s east coast, several ports in Chile, shipbuilding contracts the United States and through its subsidiary and additional Europe. SAAM. financing. 1997 1999 2000 2005 2006 2009 Liquid bulk cargo Volumes increased New vessels received. business launched. on East-West trades. CSAV received the final The Company began The Company acquired 13 container ships under transporting mainly the container shipping a shipbuilding program chemical products assets of Norasia for 22 vessels ordered using specialized Container Lines Ltd. in 2003. vessels between Chile and Norasia China Ltd., and other countries on which served Asia- the west coast of South Europe, Transpacific America. and Transatlantic routes.
2019 Annual Report 19 CSAV merged with Hapag-Lloyd. A Business Combination Agreement (BCA) was signed in April and all its conditions were fulfilled in December. New vessels received Accordingly the container shipping business was and SAAM spun off. The transferred to Hapag-Lloyd, and CSAV became Company received the the largest shareholder in Hapag-Lloyd with a three remaining vessels 30% interest. Its interest increased to 34% after in the shipbuilding contributing EUR 259 million to a capital increase program for seven in Hapag-Lloyd of EUR 370 million. CSAV came to 8,000 TEU vessels. jointly control Hapag-Lloyd through a shareholder SAAM was spun off, to agreement between CSAV, Kühne Maritime and the become SM SAAM. city of Hamburg. 2011 2012 2013 2014 2015 Operational Vessel investment plan. Hapag-Lloyd’s restructuring and The capital increase IPO. Hapag-Lloyd new controller. A was successfully successfully conducted profound operational completed totaling its Initial Public Offering restructuring began, US$ 330 million, to (IPO) on the stock which was successfully build seven 9,300 TEU exchanges in Frankfurt completed in 2012. vessels with deliveries and Hamburg, in Quiñenco S.A. (Luksic scheduled to begin at accordance with the Group) acquired an the end of 2014, and original agreement. interest in CSAV, to prepay liabilities. CSAV and Kühne thus achieving joint Quiñenco S.A. increased Maritime subscribed control with Marítima its interest to 46.0%. 10.33% of the shares de Inversiones S.A. issued at the IPO, (Claro Group), each with contributing EUR 20.6%. CSAV received 27.3 million each. four new 8,000 TEU Consequently, CSAV vessels and one 6,600 reduced its interest to TEU vessel. 31.35%.
20 Compañía Sud Americana de Vapores S.A. Interest increased in Hapag-Lloyd. CSAV increased its interest in Hapag-Lloyd to Financing the 25.86% as of June investment in Hapag- 30, 2018, through Lloyd. The Company acquisitions on German placed bonds on the stock exchanges. This local market for US$50 investment totaled million, which were US$ 28.4 million, used to repay the US$30 financed with a bridge million loan used to loan, which was finance its contribution subsequently repaid to Hapag-Lloyd’s IPO. from Hapag-Lloyd’s It sold its shares in the dividends announced in joint venture with Odfjell March and paid in July Tankers. 2018. 2016 2017 2018 2019 Hapag-Lloyd merged with UASC. The merger Interest increased again in Hapag-Lloyd. CSAV between Hapag-Lloyd and United Arab Shipping increased its interest in Hapag-Lloyd during Company (UASC) was completed in May and CSAV’s 2019 through acquisitions on the German stock interest was diluted to 22.57%. However, after a exchanges, and reached 27.79% by the end of the EUR 352 million capital increase by Hapag-Lloyd period. These investments were financed with and CSAV acquiring additional shares, it closed the bridge loans, subsequently repaid using funds year with 25.46%. It financed this investment with from placing a US$ 100 million bond on the local a capital increase of US$ 294 million completed in market, and bridge loans from its parent company, November. CSAV sold Norgistics Chile S.A., to close Quiñenco, of US$ 30 million. its logistics and freight forwarder business.
2019 Annual Report 21 Ownership and Control SHAREHOLDERS
The Company had issued 36,796,876,188 fully subscribed and paid, single-series shares, with no par value, held by 3,590 shareholders, as of December 31, 2019. It did not increase or decrease its shares during 2019.
The Company’s 12 largest shareholders as of December 31, 2019, hold 83.91%.
Ownership Shareholde Shares Interest
Inversiones Rio Bravo S.A. 12,460,691,856 33.86%
Quiñenco S.A. 7,512,081,524 20.42%
Inmobiliaria Norte Verde S.A. 2,639,009,900 7.17%
Marítima de Inversiones S.A. 1,979,016,803 5.38%
Bolsa de Comercio de Santiago, Bolsa de Valores 1,748,359,027 4.75%
BTG Pactual Chile S.A. Corredores de Bolsa 1,001,033,049 2.72%
Banco Itaú Corpbanca on behalf of foreign investors 806,881,522 2.19%
Banco de Chile on behalf of non-resident third parties 644,174,715 1.75%
Banco Santander on behalf of foreign investors 560,495,286 1.52%
Inversiones Beta Ltda. 530,500,000 1.44%
Inversiones Megeve Dos Ltda. 503,107,172 1.37%
Banchile Corredores de Bolsa S.A. 489,274,672 1.33%
Total 30,874,625,526 83.91%
22 Compañía Sud Americana de Vapores S.A. CONTROL
The Luksic Group exercises control over the Company, as defined in Chapter XV of Law 18,045, through Quiñenco S.A. and its subsidiaries, Inversiones Río Bravo S.A. and Inmobiliaria Norte Verde S.A. As of December 31, 2019, its ownership interest totaled 61.45%.
Shareholder Shares Ownership Interest 61.45% Inversiones Rio Bravo S.A. 12,460,691,856 33.86%
Quiñenco S.A. 7,512,081,524 20.42%
Inmobiliaria Norte Verde S.A. 2,639,009,900 7.17%
Total Luksic Group 22,611,783,280 61.45%
Luksic Group
82.9% of Quiñenco S.A. is owned by Andsberg Inversiones Ltda., Ruana Copper A.G. Agencia Chile, Inversiones Orengo S.A., Inversiones Consolidadas Ltda., Inversiones Salta SpA., Inversiones Alaska Ltda., Inmobiliaria e Inversiones Río Claro S.A. and Inversiones Río Claro Ltda. The Luksburg Foundation indirectly controls 100% of Andsberg Inversiones Ltda., 100% of Ruana Copper A. G. Agencia Chile and 99.76% of Inversiones Orengo S.A.
Andronico Mariano Luksic Craig (Chilean ID number 6.062.786-K) and family control 100% of Inversiones Consolidadas Ltda. and Inversiones Alaska Ltda. Andrónico Luksic Craig’s family holds 100% of Inversiones Salta SpA. Inmobiliaria e Inversiones Río Claro S.A. and Inversiones Río Claro Ltda. are indirectly controlled by the Emian Foundation, in which the successors of the late Mr. Guillermo Antonio Luksic Craig† (Chilean ID Number 6.578.5978) have interests.
There is no shareholder agreement between the controllers of the Company.
2019 Annual Report 23 Our Businesses
24 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 25 Container Shipping Industry The Company participates in the container shipping business through its investment in Hapag-Lloyd. It has a global presence and is involved in all major industrial processes.
The container shipping industry continued to face challenging circumstances for all its participants during 2019, in particular weak global economic growth caused by trade tensions between China and the U.S., which have directly affected the shipping industry since 2018. However, over the last few years there has been a constant improvement in fleet indicators, mainly in the orderbook, which has been at historical minimums, indicating lower growth in global transport capacity and greater stability in the balance between supply and demand, as the industry can now organically absorb these fluctuations. This progress has been reflected in improved operational results by various shipping companies and a greater number with positive returns in this period.
The long process of consolidation within the industry is almost complete, which involved several mergers and bankruptcies, and the formation of global operating alliances to reduce investments and achieve greater efficiencies. Over the next few years, the industry will continue to be fully focused on capturing synergies from the new organizations, optimizing operational costs and increasing productivity, in order to improve asset utilization and fuel efficiency, and deal with its next challenges.
26 Compañía Sud Americana de Vapores S.A. However, the new environmental standard IMO 2020 imposed by the International Maritime Organization (IMO) raises uncertainty due to the impact of these changes, especially as operational costs are likely to rise due to the higher price of the new cleaner fuel. This option was adopted for over 90% of the fleet at the beginning of 2020. Another significant influence is the effect of COVID-19 on the main markets connected to the shipping industry, which had yet to be quantified when this annual report was published.
THREE MAIN FACTORS SHAPE THE SHIPPING INDUSTRY
1) Global economic development
2) Trends in supply
3) Inputs and new regulations
2019 Annual Report 27 1) GLOBAL ECONOMIC DEVELOPMENT
COMPLEX WORLD ECONOMIC CONDITIONS Global annual GDP growth began to decline in 2018, mainly due to the complex economic situation associated with trade tensions between the United States and China that arose in the middle of that year and continued to intensify during 2019.
The closing 2019 forecast for the shipping industry and for global GDP (which are closely aligned) were for annual growth of 1.8% and 2.9%, respectively. These were the lowest figures since the 2009 crisis. These trends indicated substantial weakness and volatility in global growth.
Moderate recovery could be seen in 2020.
The January 2020 International Monetary Fund (IMF) report projected recovery in global GDP growth to 3.3% for 2020 and a 2.4% increase in demand for containerized shipping, aligned to improved global growth, although at a slower rate. Therefore, a moderate recovery for both indicators could occur, which depends on favorable news about the global economy, especially regarding U.S.-China trade negotiations, progress on a Brexit agreement and control of the COVID-19 pandemic.
2) TRENDS IN SUPPLY
SUPPLY MATCHED TO CURRENT ECONOMIC CONDITIONS Supply growth over the next few years can be measured as the total transport capacity of vessels under construction divided by the total transport capacity of the current fleet. These vessels will be incorporated into the fleet over the next two or three years, which is the average vessel construction period. The number of vessels scrapped per year must be subtracted from this calculation.
Vessels under construction have reached record lows and net supply growth is aligned with a less dynamic economy worldwide.
28 Compañía Sud Americana de Vapores S.A. Over the last few years, this indicator has remained positive. Vessels under construction totaled 10.5% of the current global operating fleet as of December 31, 2019, which is historically low.
This figure represents approximate supply growth for the next two or three years of around 4% per year. For example, if we consider that the vessels have a useful life of 25 years, this increase would exactly match fleet renewal.
The indicator that effectively measures fleet renewal is the vessel scrapping rate, which has remained low over the last two years at close to 1% per year. Therefore, net supply growth is close to 3%, which is closely aligned with the lower dynamism of transport demand, although it is still keeping some pressure on supply growth as this is continually low.
Additionally, the new global fuel standard could accelerate scrapping and subsequent recycling of older and smaller vessels, as their fuel consumption is inefficient and retrofitting them with scrubbers is technically unfeasible.
Excluding the effect of the new IMO 2020 regulations, the number of idle vessels remains low and controlled.
Another sensitive indicator reflecting the balance between supply and demand is the size of the idle fleet, which has been kept low and controlled since mid-2017. Recently, a larger number of vessels are out of service for scrubber retrofits to comply with the new IMO 2020 fuel regulations, which came into effect in January 2020. Excluding this effect, the indicator has not significantly increased, which reflects that current transport capacity is well integrated into the present global market. Furthermore, it would imply that an increase in the idle fleet could significantly reduce the growth in active global supply, which would reduce the risk of destabilization.
These reasons all indicate that the industry has balanced its growth and can organically adjust its transport capacity to changes in demand, using techniques such as slow sailing and voyage cancellation.
2019 Annual Report 29 CONSOLIDATION PROCESS COMPLETED AND EFFICIENCIES BEING SOUGHT
The top 10 companies operate 85% of the world’s shipping capacity, while the top 5 operate 66%.
Even though the container shipping industry still boasts a large number of players, especially in the segment of smaller-sized companies, the industry is far more consolidated. The top 10 companies operated 85% of the world’s shipping capacity at the end of 2019 (61% in 2013), while the top 5 operated 66%.
This trend has continued since the 2009 crisis, due to shipping company mergers and acquisitions. The wave began at CSAV when it merged with Hapag-Lloyd in 2014, and continued when the latter merged with the United Arab Shipping Company (UASC) in 2017, followed by joint operation agreements and alliances on the main trades. These have enabled it to improve customer services, extending geographical coverage while achieving economies of scale and network.
The current structure of global alliances has developed on various trades since the second quarter of 2017, and has resulted in more efficient use of resources and orderly and coherent growth plans that meet joint requirements. The three alliances are: 2M, comprising Maersk and Mediterranean Shipping Company (MSC); Ocean Alliance, led by CMA CGM and COSCO; and THE Alliance, which comprises Hapag-Lloyd, ONE (K-Line, NYK and MOL, the three leading Japanese shipping lines) and Yang Ming, and will be joined in April 2020 by Hyundai Merchant Marine (HMM). They concentrate the total transport capacity for the main long-haul east-west trades.
30 Compañía Sud Americana de Vapores S.A. Focus on effective integration and post- merger synergies.
Following these processes, the main global operators have already reached a size that enables them to benefit from economies of scale, optimize their fleet and logistics network and increase the scope of their service network. However, larger companies that have emerged from mergers and acquisitions have identified far less benefits, due to decreasing returns on synergies and greater complexities with regulatory issues. Therefore, no new consolidations are envisaged over the next few years, and they will continue to focus on effective integration and harnessing post-merger synergies.
STIFF COMPETITION CHASING THIN MARGINS IN THE SHIPPING MARKET Over the last three years the Shanghai Containerized Freight Index (SCFI) has been significantly more stable than in 2015 and 2016, when it also reached its lowest historical point. This stability is due to the balanced relationship between supply and demand, to reduced vessel construction and delivery and to the large operating alliances that became effective in 2017.
Profitability is still below that of a sustainable balance and an adequate return on assets.
2019 Annual Report 31 However, the effect of rising fuel prices has been moderate but continual since 2016. Ex- bunker freight rates (excluding the cost of fuel), which are used by companies to cover all their remaining operating and finance costs, have remained similar to periods with greater crises. Thus, they are lower than rates that the industry considers sustainable to obtain an adequate return on its assets. It is clear that only a marginal increase in ex-bunker rates might provide shipping lines with sufficient revenue to pay all their expenses and achieve profits. This scenario that has not yet been regularly achieved by a significant proportion of the industry.
Average margins between late 2018 and mid-2019 increased, compared to the same period for the previous year, which partially improved the industry’s operating conditions. However, average margins fell during the second half of 2019, compared to the same period in 2018, although they improved towards the end of 2019 due to the decrease in the price of high-sulfur fuel. The change in IMO regulations in January 2020 implies this fuel will no longer be used, so demand for it began to fall away and its price fell. It was also due to integrating the price of new low-sulfur fuel into spot rates, which is more expensive because it requires extensive refining. Unfortunately, these margin improvements are temporary and could fall significantly at the beginning of 2020.
3) INPUTS AND NEW REGULATIONS
PRICES FOR THE PRINCIPAL INPUT REMAIN VERY VOLATILE Fuel is the most important input in the shipping industry. A moderate but continuous increase in the price of fuel has continued since early 2016, and by the end of 2018 it had broadly recovered to its peak prior to its fall in 2015, which has maintained constant pressure on operating costs and equilibrium shipping rates.
Its price has been very volatile over the last few years, especially at the end of 2018 and during the second half of 2019, because of lower demand for high-sulfur fuel (known as IFO 380) due to the introduction of IMO 2020, which significantly limits its use for long- haul oceanic voyages.
The worldwide application of this environmental regulation to all vessels implies that companies must use a less contaminating fuel known as VLSFO (Very Low Sulfur Fuel Oil) with a maximum sulfur content of 0.5%. This is considerably lower than the current limit of 3.5%, and probably implies higher operational costs due to its extensive refining and consequently higher price. This is the first and most sustainable short-term option that complies with this regulation, and should apply to over 90% of global transport capacity.
32 Compañía Sud Americana de Vapores S.A. At the end of 2019 and the beginning of 2020, the VLSFO price was similar to the price for IFO 380 during the second half of 2018, prior to the effects of the new environmental regulations. However, there is still substantial uncertainty regarding how it will evolve.
There are other options to comply with the new environmental measures in the IMO 2020 regulation, but these have limited application within the total fleet at the moment, and would involve testing, evaluations and potential investment over the next few years.
The second option is retrofitting vessels with scrubbers, which capture the atmospheric sulfur emissions from combustion and allow these vessels to continue using the cheaper high-sulfur fuel. However, companies must then take responsibility for disposing of this waste, which is a complex, expensive logistical process. Furthermore, many jurisdictions no longer allow this fuel to be used within their maritime territories.
The third option is converting vessels to burn liquefied natural gas (LNG), which is the longest term solution for the industry, but could become a new operational paradigm for the shipping industry of the future. This fuel reduces atmospheric sulfur and particle emissions by over 90% and carbon dioxide emissions by over 20% compared to VLSFO, making it the best option currently available. However, the number of new vessels that have adopted this technology and that could be converted is limited. Therefore, it could take several years to achieve significant progress.
2019 Annual Report 33 Container Shipping Business The results of Hapag-Lloyd’s transformations over recent years have been reflected in its operational and financial indicators. Currently, it is achieving industry leading performance.
The German company Hapag-Lloyd is the organized into six regions: Asia (Singapore), fifth-largest container shipping company North America (Piscataway-NJ), Latin in the world, with a total transport capacity America (Valparaiso), Europe (Hamburg), of 1.7 million TEUs. It operates a very Middle East (Dubai) and Southern Europe modern, ecological and efficient fleet in (Genoa). comparison to the rest of the industry. Its average vessel size exceeds that of the top Hapag-Lloyd has been actively involved in 10 global shipping companies by 16%, and transforming the industry over the past few 62% of its fleet is company-owned. years. It initiated the last wave of industry consolidation by merging with CSAV in The company’s extensive network gives December 2014, followed by merging with it global coverage that connects the the United Arab Shipping Company in May main east-west (Far East, Trans-Pacific 2017, to become the fifth-largest global and Atlantic) trades, north-south (Latin shipping line. Hapag-Lloyd has benefited America) trades and internal and emerging from significant operational synergies trades (intra-Asia, intra-Europe, intra- and implemented cost reduction plans, America, Africa and Oceania). Its services which already total over US$ 1 billion in include specialized and over-sized cargo, savings since 2014. Furthermore, its latest together with chemical and refrigerated cost management program began in 2018, cargo, serving a highly diversifiedwhich will result in estimated additional commercial portfolio. Hapag-Lloyd is annual savings of between US$ 350 million
34 Compañía Sud Americana de Vapores S.A. EXCELLENT OPERATIONAL AND FINANCIAL PERFORMANCE
Revenue EBIT / TEU transported Net income for the year US$ 14,115 US$ 75 US$ 418 million million
SOUND ACTIVE ROLE CONTINUAL FINANCIAL POSITION IN INDUSTRIAL CHANGES SEARCH FOR IMPROVEMENTS
• Operating cash flows of US$ 2,270 • Successful mergers with CSAV and • Cost optimization by 2021 million UASC • 2023 strategy • Reduction of financial debt by US$ • Main member of THE Alliance 981 million • Complete adoption of IMO 2020 regulations
and US$ 400 million by 2021, although it Express (ONE), in addition to Yang Ming. The Hapag-Lloyd has been developing a has already captured over 50% in 2019. integration of Hyundai Merchant Marine strategic plan since 2018 that captures (HMM) is scheduled for April 2020. THE the increasingly complex nature of Similarly, it has negotiated joint operating Alliance represents 17% of the world’s total improvements from economies of scale, agreements and global alliances that container shipping capacity and operates synergies and efficiency plans. Its focus have extended the scope of its services. a significant share of the major east- has been on creating greater value for its It has participated in “THE Alliance” since west trades, such as the Transatlantic, customers. A key objective of its 2023 April 2017, which includes the Japanese Transpacific and Far East trades, with strategy is to lead by quality and provide a companies K-Line, Mitsui O.S.K. Lines shares of 36%, 26% and 24%, respectively. superlative transport service supported by (MOL), and Nippon Yusen Kaisha (NYK), digital transformation and organizational aligned since 2018 in the Ocean Network agility.
2019 Annual Report 35 Vehicle Transport Business and Industry BUSINESS
CSAV directly operates the business of shipping vehicles in specialized vessels known as Pure Car and Truck Carriers (PCTC). These vessels can load and unload vehicles on their own wheels using Roll-on Roll-off (RoRo) ramps and can transport a wide range of vehicles, such as passenger vehicles, commercial vehicles, trucks, industrial machinery and any rolling cargo.
The Company mainly served South America’s west coast markets during 2019, which import vehicles from the main global production centers, such as Asia, Europe, North America, and the east coast of South America. The wide geographic scope of these services has made CSAV a regional market leader.
The operational structure implemented during 2019 mainly affected the trades from Europe and North America, and reflects vessel charter agreements with other operators in the industry. This has significantly reduced its operating cost structure.
No CSAV customer individually represented over 10% of the Company’s revenue during 2019. Only two suppliers individually represented over 10% of the Company’s purchases in 2019.
INDUSTRY
Chile and Peru are the main import markets for CSAV on the west coast of South America, and they grew in 2017 and 2018, due to greater economic dynamism and increased consumer expectations regarding prevailing economic conditions, which was reflected in significant vehicle imports and sales. However, demand growth began to weaken towards the end of 2018, which was accentuated during 2019 when local economic conditions generated a swift contraction in vehicle demand that reduced imports.
36 Compañía Sud Americana de Vapores S.A. Furthermore, global vessel charter rates rose, due to greater supply rationalization, reduced investment in vessel construction worldwide and increased vessel scrapping while demand recovered, which increased pressure on CSAV’s business.
2019 Annual Report 37 CSAV’S MARKETS AND SERVICES
AUSTRAL SERVICE EUMEXSA SERVICE Monthly service that calls at the main ports with rolling cargo Monthly service that connects the main hub port of Zeebrugge in production in Brazil and Argentina, destined for markets in Chile Belgium for vehicles in Europe, with ports on the east coast of the and Peru, and connections to Ecuador. This service operates United States and continues via the Panama Canal to the Pacific vessels with a capacity of 5,000 to 7,400 RT. coast of South America. This service operates vessels with a capacity of 5,000 to 6,000 RT.
AUSTRAL SERVICE EUMEXSA SERVICE
MANTA
ZEEBRUGGE SOUTHAMPTOM
ARATU CALLAO BALTIMORE LIVORNO BORUSAN
JACKSONVILLE
IQUIQUE
SANTOS VERACRUZ CARTAGENA
SAN ANTONIO BUENAVENTURA
RIO GRANDE MANTA
ZARATE CALLAO
ARICA
SAN ANTONIO
38 Compañía Sud Americana de Vapores S.A. NASA SERVICE AJAP SERVICE Monthly service that serves ports in Germany, Belgium and Spain Twice monthly service from Japan and China to Peru and Chile and transshipment connections from England, Sweden, Italy and with connections from China, which extends its coverage to that Turkey, among others, collecting cargo destined directly for Chile region. This service operates vessels with a capacity of 6,000 to and Peru and via transshipment to Colombia and Ecuador. This 7,700 RT. service operates vessels with a capacity of 6,400 to 7,600 RT.
NASA SERVICE AJAP SERVICE
GOTHENBURG TURKU
BREMERHAVEN ZEEBRUGGE LIVORNO VIGO BORUSAN YOKOHAMA
TIANJIN BARCELONA NAGOYA SHANGHAI
CALLAO CALLAO
IQUIQUE IQUIQUE
SAN ANTONIO SAN ANTONIO
At the end of January 2020 CSAV decided to close its vehicle During 2019, the Company’s financial statements continued to transport business and discontinue these services in an orderly present as discontinued activities its subsidiaries associated manner to focus all of its financial and management strengths with its freight forwarder and integrated logistics business, which on developing its main asset, its share of the German shipping were discontinued in 2018. company Hapag-Lloyd.
Memoria Anual 2019 39 Consolidated Results Net income attributable to the owners of the company of MMUS$ 124.6 for the year ended December 31, 2019, represents an improvement of MMUS$ 106.4 over the same period in 2018.
The Company reported an operating loss of MMUS$ 10.7 for the year ended December 31, 2019, which represents a decrease of MMUS$ 14.4,4 with respect to the same period last year, explained in part by the negative gross margin of MMUS$ 0.9, marking a drop of MMUS$ 5.1 from last year, related to reduced results from CSAV’s direct operations in the vehicle transport business, which was negatively affected by increased operating costs stemming from higher vessel charter prices with respect to the same period last year, and a smaller volume of vehicles transported, in addition to an increase in provisions for onerous contracts for voyages over the next few months.
CSAV’s Income Statement shows revenue of MMUS$ 93.0 for 2019, which represents an increase of MMUS$ 1.6 with respect to the same period in 2018, explained by the Company’s shift in operating structure due to lower volumes of vehicles transported, which resulted in higher income from vessel charters and slot sales to third parties on operated vessels with respect to 2018, which helped offset the costs from diminished vessel usage. Excluding this effect, in 2019 there was a decrease in freight income as a result of lower demand. A portion of this income was impacted by indexation to variations in fuel prices, but the effect was not significant with fuel prices rising a mere 1% during the year.
Cost of sales reached MMUS$ 93.9 for the year ended December 31, 2019, up MMUS$ 6.7 from last year, explained by increases in fleet costs related mostly to vessel charters, and the rise in provisions for onerous contracts associated with voyages over the next few months.
40 Compañía Sud Americana de Vapores S.A. Administrative expenses totaled MMUS$ 12.2 in 2019, reflecting an increase of MMUS$ 1.7 over the same period last year, which also includes costs related to closing the vehicle transport service.
Other operating income reached MMUS$ 2.4, down MMUS$ 7.6 from the same period last year, related mainly to the sale of offices not used for operations and classified as investment property within the Company’s assets.
In share of income (loss) from equity method associates and joint ventures, CSAV recognized income of MMUS$ 147.8 for the year ended December 31, 2019, which is MMUS$ 133.8 greater than the figure recorded in 2018. This improvement is due an increase of MMUS$ 99.2 in CSAV’s direct share in Hapag-Lloyd’s net income compared to 2018, which in turn is due to the significant increase of MMUS$ 363.6 in Hapag-Lloyd’s net income for the year and to CSAV’s increased interest during 2019. Another contributing factor was the greater badwill in 2019 of MMUS$ 33.6 compared to 2018 associated with the recently increased interest, and greater amortization of the PPA for the investment in Hapag-Lloyd of MMUS$ 1.0 compared to 2018.
For the year ended December 31, 2019, CSAV recognized an income tax expense of MMUS$ 1.3, representing an increase of MMUS$ 8.4 over the same period in 2018. This change is mainly due to the increase in deferred tax expense in 2019 because of the effect of the depreciating euro on the CSAV Group’s financing structure for its investment in Hapag- Lloyd.
Therefore, the Company’s net income attributable to the owners of the company of MMUS$ 124.6 for the year ended December 31, 2019, represents an improvement of MMUS$ 106.4 over the same period in 2018.
2019 Annual Report 41 MAIN INDICATORS
Financial Position (1) MMUS$ 2019 2018 2017 2016 2015 2014
Equity method investments 2,168.4 1,939.5 1,932.3 1,771.7 1,792.5 1,765.2
Total assets 2,517.4 2,257.9 2,266.0 2,168.2 2,237.0 2,210.6
Total liabilities 293.2 127.7 148.5 161.7 176.3 310.7
Total equity 2,224.2 2,130.2 2,117.5 2,006.5 2,060.7 1,899.9
Statement of Income (1)(2) MMUS$ 2019 2018 2017 2016 2015 2014
Revenue 93.0 91.4 109.9 109.3 167.0 235.3
Cost of sales (93.9) (87.2) (102.6) (105.9) (164.2) (237.1)
Net operating income (loss) (3) (10.7) 3.7 1.3 7.9 (12.8) 825.6
Share of income (loss) of equity method associates and joint ventures 147.8 14.0 (139.5) (7.0) (6.5) (86.7)
Non-operating income (loss) (4) (10.3) (6.1) (3.4) (4.0) (1.1) 8.6
Net income (loss) attributable to owners of the Company 124.6 18.2 (188.1) (23.3) (14.7) 388.7
Earnings (loss) per share attributable to the owners of the Company (US$*100) 0.4 0.1 (0.6) (0.1) (0.0) 2.3
Key Financial Indicators 2019 2018 2017 2016 2015 2014
Return on average assets % 5.2 0.8 (8.5) (1.1) (0.7) 17.6
Return on average equity % 5.7 0.9 (9.1) (1.1) (0.7) 20.5
Current liquidity 0.7 1.6 1.8 1.5 1.3 0.4
Leverage ratio 0.1 0.1 0.1 0.1 0.1 0.2
Operational Indicators for CSAV (5) 2019 2018 2017 2016 2015 2014
Paying cargo, in millions of tons (6) 0.3 0.3 0.4 1.1 1.1 24.8
Vessel operating days (7) 1,407 1,570 1,965 2,560 2,991 19,446
Vessel annual equivalent (8) 3.9 4.3 5.4 7.0 8.2 57.3
Indicators for Investment in Hapag-Lloyd 2019 2018 2017 2016 2015 2014
CSAV's interest at year end (%) 27.8% 25.9% 25.5% 31.4% 31.4% 31.4%
Hapag-Lloyd’s net income for the year (MMUS$) 417.9 54.3 35.3 (102.9) 126.4 (802.2)
Hapag-Lloyd’s dividends (MMUS$]) (9) 29.8 117.3 - - - -
(1) The financial statements for 2014 to 2019 have been prepared under International Financial Reporting Standards (IFRS). (2) The Statement of Net Income for 2016, 2015 and 2014 have been restated to reflect discontinued operations in 2017, 2016 and 2015, respectively. (3) Net operating income (loss) under IFRS. (4) Net income (loss) before taxes, less net operating income and share of income (loss) of equity method associates and joint ventures under IFRS. (5) The information for 2017 includes Norgistics’ freight forwarding and logistical services for eleven months, and the Company’s remaining businesses for twelve months. The information for 2016 includes the liquid bulk service for nine months, and the Company’s remaining businesses for twelve months. (6) Paying cargo: a freight payment unit, basically one thousand kilograms, or for volumes, a cubic meter or 40 cubic feet. This calculation includes all of CSAV’s services: container shipping, car carrier, reefer cargo and bulk solids and liquids. (7) Vessel operating days: this includes all of CSAV’s services: container shipping, car carrier, reefer cargo and bulk solids and liquids. (8) Vessel annual equivalent: vessel operating days divided by the days in a year. (9) Dividends distributed in the year and charged to earnings for the previous year.
42 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 43 Risk Management The container shipping business is CSAV’s main asset, through its investment in Hapag- Lloyd. Although CSAV is not directly exposed to the financial risks of the container shipping industry as an operator, it is indirectly exposed because these risks affect the value of the Company’s investment in that joint venture, the associated dividend flow from Hapag-Lloyd and its capital requirements, which could result in CSAV having to subscribe to capital increases. If it chooses not to subscribe, its interest could be diluted. Consequently, the value of its investment and associated future dividends would decline.
CSAV announced its decision to close its vehicle transport business in January 2020. Accordingly, CSAV’s direct operational risks have significantly reduced, as very limited business will continue for the first half of 2020 only, in order to bring these services to an orderly close.
MARKET RISK
SUPPLY-DEMAND EQUILIBRIUM The demand for maritime transport is highly correlated with growth of global GDP and trade, whereas, the supply of vessels is determined by the global fleet. An imbalance between supply and demand could affect the container shipping business managed by Hapag-Lloyd, and negatively impact the financial performance of all shippers by not keeping vessel chartering costs correlated with changes in freight rates, discounting the cost of fuel (ex-bunker rate).
A sudden global economic slowdown could potentially lead to the risk of imbalance, due to lower growth in the demand for shipping services compared to forecast growth in supply, with the latter represented by the delivery of vessels whose construction is already committed. A greater imbalance could result in an oversupply of capacity and general conditions would deteriorate, since the industry operates with low profit margins and is fiercely competitive. Such a situation could be triggered by the COVID-19 virus,
44 Compañía Sud Americana de Vapores S.A. which has been spreading from China since the beginning of 2020 and has suspended businesses around the world. However, it is still too early to assess the potential effects of this virus on the shipping industry.
The imbalance between supply and demand can affect shippers to a greater or lesser extent depending on the characteristics of their operating fleet, such as vessel age, fuel consumption, versatility and other characteristics, the proportion of their fleet that is owned versus chartered, or operational leverage, in comparison to the industry. The duration and age of charter agreements can limit shipping companies’ capacity to match their operated fleets and change their vessel sailing speed, in response to abrupt drops in shipping demand, or streamlining and cost-cutting initiatives.
Consequently, a tremendous challenge facing shippers is establishing a fleet strategy that balances company-owned with chartered vessels that is consistent with its market position and forecasts for the next few years. Hapag-Lloyd has medium and long-term contracts with a significant portion of its customers that include freight rates that are either fixed, or indexed to changes in fuel prices, in order to mitigate fluctuations in the demand for its services.
GEOGRAPHICAL MARKETS Hapag-Lloyd participates in the container shipping business across all major global trades and it distributes its services across diverse geographical markets. As a result, this business does not particularly expose the Company to a restricted group of geographical markets, and it may compensate for potential market contingencies on certain trades, but still leave it exposed to global fluctuations. Even with a balanced global service network, Hapag-Lloyd’s relative exposure is above the industry average on Transatlantic, Latin American and Middle East trades and below average on Asia-Europe and Transpacific trades.
2019 Annual Report 45 FUEL PRICES Fuel is an important component in the cost structure of the shipping industry and is commonly called “bunker”. Shipping companies are exposed to risk that its price may increase. The greatest risk arises from customers with a service contract at fixed rates, which may lead to deteriorating operating conditions unrelated to the agreement.
Price adjustments based on changes to the cost of fuel, known as Bunker Adjustment Factor (BAF), are normally effective in covering the risk of volatile fuel prices. However, their effectiveness may be affected by price movements between the calculation date and the invoice date. The Company also has fixed-price sales and contracts without a BAF, and sales with a BAF clause that limits its coverage. Therefore, it purchases fuel hedges with terms that match the volumes it wants to hedge in order to ensure that fuel costs match the corresponding freight contracts. However, the Company cannot ensure that these hedges will completely mitigate the negative impact of a rise in fuel prices or other price variations that affect performance, such as foreign exchange or interest rates.
Furthermore, a regulation issued by the International Maritime Organization (IMO), also known as “IMO 2020”, came into effect on January 1, 2020, which aims to reduce atmospheric sulfur emissions and protect the environment. Companies are now required to retrofit scrubbers on their vessels, or buy cleaner fuels or invest in alternative fuels for their vessels, which are likely to have a higher price. Therefore, a risk arises that this rise in operating costs may not be transferred to freight rates, due to contractual conditions or fierce competition within the industry.
Accordingly, shipping companies have been incorporating improvements to their BAF clauses when renewing their contracts, by making them simpler, easier to understand and correlating them to fluctuations in the price of new fuels. The industry has also implemented new temporary and permanent surcharges to cover the investment and start-up costs related to these new inventories.
CSAV and Hapag-Lloyd’s exposure is fairly limited as they use the techniques already described, such as updating BAF clauses in contracts with their customers and fuel price hedges.
46 Compañía Sud Americana de Vapores S.A. REGULATORY CHANGES IN MARKETS Shipping companies are subject to a wide variety of laws, regulations and local, national and international agreements related to operating permits and environmental requirements that apply to the shipping business. These laws, regulations and agreements can change substantially and affect companies’ operating performance or ability to comply.
The shipping business is exposed to the impact that governments may have on many aspects of the public and private sector, such as changes in tax, labor, monetary and other policies, which impact domestic economies. CSAV and Hapag-Lloyd do not control and can by no means predict how government intervention and policies will affect domestic economies.
INTEREST RATE FLUCTUATIONS Interest rate fluctuations impact floating rate obligations. The Company does not hedge interest rates on loans with variable interest rates based on Libor. The potential effect of unhedged interest rate fluctuations on variable-rate financial instruments (assets and liabilities) held by CSAV as of December 31, 2019, is estimated to be ThUS$(296). This effect includes the combined effect on net income of: (i) an increase of 1% in the variable benchmark rate, which is used for variable-rate financial liabilities, and (ii) an increase of 1% in the overnight Libor rate, which is primarily used to invest cash surpluses.
EXCHANGE RATE FLUCTUATIONS The Company’s functional currency is the US dollar, which is the currency in which most of its operating income and expenses are denominated as well as the currency used by most of the global shipping industry. It is also Hapag-Lloyd’s functional currency. However, CSAV also has revenue and costs in other currencies, such as Chilean pesos, euros, Brazilian reales and Chinese yuan.
Most of the Company’s assets and liabilities are denominated in US dollars. However, it also has specific assets and liabilities in other currencies, which are detailed in Note 33 to the 2019 Consolidated Financial Statements.
The Company does not have any foreign currency hedges as of December 31, 2019, and manages the risk of exchange rate fluctuations by regularly converting into US dollars any local currency balances that exceed payment requirements in that currency.
2019 Annual Report 47 A 10% depreciation in the US dollar with respect to other important currencies to which the Company is exposed as of December 31, 2019, would result in an estimated loss of ThUS$ 23, keeping all other variables constant.
Furthermore, CSAV has a financing structure in euros with its subsidiary CSAV Germany Container Holding GmbH, which holds the investment in Hapag-Lloyd. Thus, changes in the euro-dollar exchange rate can affect CSAV’s standalone net income, which is used to calculate taxes in Chile and can significantly impact its deferred tax expense and deferred tax assets.
RISKS INHERENT TO THE SHIPPING BUSINESS
CREDIT RISK CSAV has a strict credit policy for managing its receivables portfolio. Most of the Company’s customers are direct customers. This policy is based on lines of credit and payment terms granted on the basis of an individual analysis of the solvency, payment capacity, and general references for each customer, their shareholders, industry and market, and their payment performance.
The Company supports its agreements for vessel and slot charters to third parties using Charter Party and Slot Charter Agreements drafted using industry standard models that appropriately cover its interests. CSAV charters vessels to third parties and slots to other shipping companies, always taking into consideration the counterparty’s creditworthiness. However, CSAV often charters slots from the same shipping companies to which it charters its own slots on other voyages and services, which significantly reduces the risk of default.
The Company makes provisions for impaired trade receivables in accordance with the impairment model based on expected credit losses, which also includes fully providing for judicial collections, bounced checks, related situations and high-risk customers and agencies, based on a case-by-case analysis.
48 Compañía Sud Americana de Vapores S.A. LIQUIDITY RISK This risk refers to the Company’s exposure to business or market factors that may affect its ability to generate income and cash flow, including the effect of contingencies and regulatory requirements associated with its business. CSAV has specific long-term borrowing to finance its investment in Hapag-Lloyd.
However, if necessary the Company has negotiated a line of credit totaling US$10 million, which had not been drawn down as of December 31, 2019.
OPERATIONAL RISK The risks of operating vessels include the possibility of accidents and maritime disasters with environmental consequences, death, loss or damage to property and cargo, among others. These can be caused by mechanical failure, human error, war, terrorism, piracy, adverse meteorological conditions, strikes or other labor problems at ports, among other reasons.
CSAV and Hapag-Lloyd operate in numerous countries and, therefore, are exposed to risks related to strikes, political instability and other events that could lead to business interruptions or the impairment of owned or chartered assets. Such events could result in partial or total closure of ports or waterways, such as the Panama Canal.
Shipping companies take out insurance to protect their fleet, with policies covering hull and machinery, war, strike and other maritime risks. Protection and indemnity insurance covers potential liability for damage to cargo, bodily injury for crew members, damage to third parties, liability for pollution, and other risks, such as policies covering the remaining property, plant and equipment.
2019 Annual Report 49 RISK MANAGEMENT MECHANISMS
Although CSAV jointly controls Hapag-Lloyd together with two other shareholders, this German company has an independent management team that controls and manages its risks autonomously and in accordance with the standards of a publicly- listed company subject to German and European Union regulations. A more detailed description of these risks and how they are managed by Hapag-Lloyd can be found in its 2019 Annual Report, which is available in English at the following link: https://www.hapag-lloyd.com/en/ir/publications/financial-report.html
CSAV manages the risks associated with its own internal processes, such as operational, financial and management risks, primarily through a program that includes internal and independent audits, a risk management plan, and administrative policies and procedures.
The audit plan is based on regularly updating the Company’s process map and reviewing it in detail. A severity analysis was conducted on the updated process map in order to allocate the time required for each department and process within the audit plan. This analysis evaluated the effect and the likelihood of occurrence of risks for each process and sub-process. The basis for this analysis is the Company’s risk appetite, established in its formal risk management procedure.
Summary audit results are regularly reviewed by the Directors’ Committee. Management also manages risk by process, using a system that includes risk management policies and procedures, risk profiles, annually updated risk inventories and a Risk Committee that meets at least four times a year to review all risk-related matters and action plans to mitigate the most significant risks. This process is validated by the Directors’ Committee and approved by the Board when necessary, based on the risk definitions in the policy. Risk management is audited by an independent third party every year.
50 Compañía Sud Americana de Vapores S.A. RISK RATING AGENCIES
In April 2019, International Credit Rating Clasificadora de Riesgo Ltda. (ICR) upgraded CSAV’s credit and bond rating from BBB- to BBB with a stable outlook, mainly due to greater stability of its cash flows from Hapag-Lloyd (rated B1 by Moody’s) and as a result of its improved operational performance over the last few years. Subsequently, ICR ratified these credit and bond ratings in its annual rating in May 2019, and its share rating as First Class Level 3.
Feller Rate Clasificadora de Riesgo Ltda. upgraded the outlook for the Company’s credit rating in June 2019, from negative to stable, ratifying its general rating as BBB- and its share rating as First Class Level 4.
2019 Annual Report 51 Investment and Financing CONTAINER SHIPPING BUSINESS
CSAV signed a Business Combination Agreement (BCA) with Hapag-Lloyd in April 2014, which contained the terms for merging their container shipping businesses. All the conditions defined in the BCA were fulfilled in December 2014, and the container shipping business was transferred to Hapag-Lloyd, making CSAV the largest shareholder in this German company with a 30% interest. After the merger, Hapag-Lloyd became a leading global operator of containerized cargo. CSAV’s interest increased to 34% during December, after contributing EUR 259 million to a Hapag-Lloyd capital increase of EUR 370 million. The shareholder agreement agreed between Hapag-Lloyd’s controlling partners—CSAV, Kühne Maritime and the city of Hamburg—took effect when this transaction was closed. The agreement formed a long-term partnership to give stability to the new entity’s control structure.
The Company fully prepaid all its bonds issued in UF in September 2015, in order to improve its financial structure. The prepayment was financed with a long-term loan of US$45 million from Banco Itaú Chile.
Hapag-Lloyd successfully completed its Initial Public Offering (IPO) on the stock exchanges in Frankfurt (Prime Standard) and Hamburg in November 2015, in accordance with the original transaction conditions. CSAV and Kühne Maritime subscribed 10.33% of the shares issued at the IPO, contributing EUR 27.3 million each. The IPO was primarily intended for the market. Accordingly, CSAV reduced its interest from 34.0% to 31.35%. Thus, the voting rights exercised by parties to the shareholder agreement, through Hamburg Container Lines Holding GmbH & Co. KG, were reduced from 51% to 45%. Nevertheless, the parties to the shareholder agreement jointly controlled 72% of Hapag-Lloyd. Subsequently, the Company placed bonds in the local market in October for US$50 million, which were used to repay the loan of US$30 million to its parent company, Quiñenco S.A, used to finance its contribution to the Hapag-Lloyd IPO in 2015.
52 Compañía Sud Americana de Vapores S.A. Hapag-Lloyd and United Arab Shipping Company (UASC) signed a Business Combination Agreement in July, whereby the German company acquired all the shares of UASC in exchange for 28% of its own shares. This resulted in Hapag-Lloyd becoming the fifth- largest shipping company in the world, with CSAV remaining the principal shareholder of the combined entity with a 22.6% interest. After a second capital increase, its interest increased to 25%. The merger between Hapag-Lloyd and UASC was announced in 2016
and was concluded in May 2017. This resulted in Hapag-Lloyd remaining the fifth-largest shipping company in the world. The merger diluted CSAV’s interest in Hapag-Lloyd from 31.35% to 22.57%, but it remained the largest shareholder of the combined entity and retained joint control of the company through a shareholder agreement with its partners Kühne Maritime and the city of Hamburg. Hapag-Lloyd increased its capital by EUR 352 million (approx. US$414 million) in October, in accordance with the BCA, in order to strengthen the combined company’s financing structure, which brought CSAV’s interest down to 24.7%. However, in accordance with agreements prior to closing the BCA, towards the end of that month CSAV increased its interest from 24.7% to 25%, by acquiring additional Hapag-Lloyd shares from Kühne Maritime. The Company financed
2019 Annual Report 53 these transactions with two bridge loans for a total of US$120 million from commercial banks and funds raised from CSAV’s majority shareholders in its capital increase in Chile. In November, CSAV successfully concluded its capital increase in Chile that began in October, and issued 6,100 million new shares through a rights issue at a price of Ch$30.55 per share, raising a total of US$294 million. CSAV attained a 25% interest in Hapag-Lloyd in December and repaid its bank commitments, and it further increased its holding in the German shipping line to 25.46% as of the close of the 2017 financial statements.
CSAV increased its share in Hapag-Lloyd by 0.4% during the second quarter of 2018, from 25.46% to 25.86% as of June 30, 2018, through purchases on German stock exchanges. This investment required funds totaling US$ 28.4 million, which were covered by bridge loans that were subsequently repaid from Hapag-Lloyd’s dividends paid in July 2018. This dividend was proposed by Hapag-Lloyd’s Board of Directors on March 28, 2018, together with the publication of its 2017 Annual Report, and was approved at a meeting of Hapag- Lloyd’s shareholders on July 10, 2018. The dividend was euro 0.57 per share. The total dividend payable to Hapag-Lloyd shareholders amounted to Euro 100 million, and CSAV received US$ 30.2 million for its 25.86% interest.
54 Compañía Sud Americana de Vapores S.A. CSAV continued to increase its interest in Hapag-Lloyd through selective acquisitions on German stock exchanges throughout the first three quarters of 2019 and purchased 1.93% during that period to close 2019 with 27.79%. CSAV stopped acquiring further shares at the beginning of 2020 after reaching its target of a 30% interest in Hapag-Lloyd when it acquired 2.21% from the Qatar Investment Authority (QIA). The funds required to increase its interest from 25.86% to 30% totaled about US$ 450 million. This transaction was partially financed by a bridge loan of US$ 100 million (US$ 70 million from Banco Consorcio and US$ 30 million from Compañía de Seguros de Vida Consorcio) during the second quarter of 2019, which was repaid during the third quarter with funds from issuing and placing Series C bonds for the same amount and charged to the US$ 150 million line registered with the Financial Market Commission. It was also partially financed with bridge loans received in 2019 and 2020, mainly from its controlling shareholder, Quiñenco. Therefore, CSAV has announced in a Material Event that it intends to increase its capital, which is expected to be completed during 2020, depending on market conditions.
2019 Annual Report 55 People
4 Managers and Senior Executives CSAV WORKFORCE 37 Professionals and Technicians Global workforce of CSAV and its subsidiaries as of December 31, 2019. All employees are located in Chile. 41 TOTAL 0 Workers
EMPLOYEE DIVERSITY As of December 31, 2019
NUMBER OF PEOPLE BY CLASSIFICATION Men Chilean
18 35 Gender
Women Nationality Foreign
19 2
Under 30 years Between 30 and 40 years Between 41 and 50 years
5 15 11 Age Between 51 and 60 years Between 61 and 70 years Over 70 years
4 2 0
Less than 3 years Between 3 and 6 years Between 6 and 9 years
10 19 0
Between 9 and 12 years More than 12 years Length of ServiceLength of 3 5
56 Compañía Sud Americana de Vapores S.A. MANAGEMENT DIVERSITY As of December 31, 2019
NUMBER OF PEOPLE BY CLASSIFICATION Men Chilean
4 4 Gender
Women Nationality Foreign
0 0
Under 30 years Between 30 and 40 years Between 41 and 50 years
0 1 2 Age Between 51 and 60 years Between 61 and 70 years Over 70 years
1 0 0
Less than 3 years Between 3 and 6 years Between 6 and 9 years
2 0 2
Between 9 and 12 years More than 12 years Length of ServiceLength of 0 0
2019 Annual Report 57 BOARD DIVERSITY As of December 31, 2019 7 7 Directors TOTAL
NUMBER OF PEOPLE BY CLASSIFICATION Men Chilean 7 6 Gender
Women Nationality Foreign 0 1
Under 30 years Between 30 and 40 years Between 41 and 50 years 0 0 1 Age Between 51 and 60 years Between 61 and 70 years More than 70 years 1 4 1
Less than 3 years Between 3 and 6 years Between 6 and 9 years 2 0 4
Between 9 and 12 years Over 12 years Length of ServiceLength of 0 1
SALARY GAP BY GENDER Position Proportion Managers Not applicable
The following table shows the proportion of average gross Deputy managers Not applicable
salary for women relative to men for each hierarchical level in Department heads and senior 98.5% the organization. This analysis does not apply to managers and specialists deputy managers as there are no women in these positions. Supervisors and specialists 98.6% Coordinators 94.0%
Administrative staff 97.0%
General 97.0%
58 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 59 Environmental Management SUSTAINABILITY AT HAPAG-LLOYD
Hapag-Lloyd’s sustainability policy declares that compliance with all environmental laws and regulations are essential. This approach has applied to its preparations for the IMO 2020 standard that comes into effect on January 1, 2020.
This International Maritime Organization (IMO) measure aims to significantly improve the ecological footprint of shipping and reduce emissions from vessels across the industry by 77% globally, equivalent to about 8.5 million metric tons of sulfur oxide per year.
The IMO 2020 regulation is the most radical and complex change in the industry in years and has involved a number of technical challenges, as well as preparing for a significant impact on the industry’s costs. An additional annual fuel cost of US$ 60 billion has been initially estimated for the industry, and US$ 1 billion for Hapag-Lloyd, in the early years.
IMO 2020 proposes three options to meet this standard, using alternative fuels, installing exhaust gas cleaning systems, and using low-sulfur fuels. Hapag-Lloyd has responded by implementing the high standards contained in environmental regulations and expertise in proactively reducing its emissions, while continuing to evaluate other technological options.
Its entire fleet is running on low-sulfur fuel, which is the best solution for Hapag-Lloyd, and the most viable in the short term.
It will also test two vessels in 2020, with systems that clean exhaust gases (known as EGCS) before they are released into the atmosphere.
It also took a technological leap by reconditioning the “Sajir”, one of 17 vehicles in Hapag- Lloyd’s fleet configured to run on Liquefied Natural Gas (LNG). This 15,000 TEU capacity vessel will be the first container vessel converted to burn this fuel in the world and is expected to be fully operational during the last four months of 2020. More importantly, this pilot project aims to demonstrate that the existing fleet can also be adapted to burn LNG and convince the industry that converting their vessels is feasible.
60 Compañía Sud Americana de Vapores S.A. If the shipping industry switches to LNG Hapag-Lloyd’s sustainability strategy Hapag-Lloyd is a founding partner of SRTI. it will not only reduce sulfur dioxide and includes progressing towards the goal of The organization spent 2019 identifying particulate emissions by over 90%, but reducing specific CO2 emissions from its shipyards that comply with EU standards, also potentially reduce CO2 emissions fleet by 20% (per TEU km) during 2020. although it also expects to certify sites by approximately 20%. This not only outside Europe. progresses towards the IMO’s goal of Therefore, it has become more involved zero industry emissions by 2100, but also in the Ship Recycling Transparency Hapag-Lloyd will continue to work reaffirms Hapag-Lloyd’s commitment as a Initiative (SRTI) over the past year, which tirelessly on mitigating climate change, leading company in the reduction of carbon has introduced greater transparency and responding to the UN’s call to action. emissions. and harmony to competition in this area, and leveled the playing field within the The Marine Fuel Recovery (MFR) industry so that all shipping companies mechanism was launched during 2019, can eventually recycle their ships in an which simplified the rate structure and environmentally friendly manner. replaced all fuel charges. This transparent and fair system aims to recover the fuel- related costs caused by IMO 2020 and has been widely accepted by customers and various stakeholders.
2019 Annual Report 61 Active meteorological navigation with route optimization.
Environmental Protection Self-adjusting and adaptive autopilot.
“No Trash Overboard” Measures in the Hapag- Policy.
Sophisticated Lloyd Fleet performance management • Compliance with ISO 9001 and ISO 14001 worldwide. reduces the movement of • Certified compliance with the highest environmental standards. empty containers • GL Excellence - 5 stars (covers multiple criteria). around the world. • Energy Efficiency Design Index (EEDI) for the entire owned fleet.
Electrical deck machinery.
Tanks and biological treatment plants for waste water.
Strict management Large bilge holding and treatment of tanks, and water / bilge ballast water. separator.
62 Compañía Sud Americana de Vapores S.A. Crew trained in environmental Fully recyclable Energy and weight efficient issues. containers. refrigerated containers with intelligent control system and no Ship Energy Efficiency ozone-damaging refrigerant. Management Plan (SEEMP) for environmental matters.
Slow steaming for fuel economy.
Connections to electrical power when calling at port.
Highly efficient rudder and fins.
Propeller polishing between scheduled dry- dock maintenance.
Main engine with electronic Low-friction fuel injection and valve coatings. Separate tanks control. and pipes for low- Hull strength sulfur fuel. Monitoring and reduction monitoring. of NOx (nitrogen oxide) Refrigeration and emissions from the main Cleaning air conditioning engine. underwater systems that hull between do not use scheduled dry-dock ozone-damaging maintenance. refrigerant.
2019 Annual Report 63 CSAV QUALITY AND ENVIRONMENTAL MANAGEMENT
CSAV’s Quality and Environmental Policy commits it to meeting customer requirements and expectations, by providing secure cargo shipping services that comply with the terms of the contract.
This commitment is based on the Company’s strategic pillars, as follows:
• Continuous improvement of the Integrated Quality and Environmental Management System. • Compliance with the laws and regulations that apply to the shipping business. • Environmental sensitivity to the stakeholders involved in CSAV’s shipping services.
The Integrated Quality and Environmental Management System monitors all processes, ensures that they comply with ISO standards, and that the Continuous Improvement Cycle (Plan, Execute, Measure, Act) is systematically applied.
Senior management defines responsibilities and reviews the Integrated Management System, which complements this monitoring. They align strategies and introduce corrections as necessary to ensure compliance with their objectives. Regular internal audits contribute to achieving these objectives.
64 Compañía Sud Americana de Vapores S.A. PURPOSES OF THE INTEGRATED QUALITY AND ENVIRONMENTAL MANAGEMENT SYSTEM
• To regularly and effectively monitor processes, evaluate the results and report to senior management. The objective is to achieve excellence, optimize resources and reduce risks that could impact the business or the environment.
• To influence stakeholders when applying specific controls, in order to avoid environmental impacts. CSAV only commercially operates the vessels it charters.
• To monitor customer satisfaction surveys, ensure compliance with contracts and respond to suggestions and complaints in a timely manner.
• To improve relationships with all stakeholders, using a Corporate Social Responsibility (CSR) approach.
• To continually evaluate process management and results, by analyzing and monitoring management indicators and report to senior management as appropriate.
2019 Annual Report 65 66 Compañía Sud Americana de Vapores S.A. The Company’s policies and initiatives also extend the concept of sustainability to other CSAV departments, such as:
• Compliance with the Crime Prevention Model and Law 20,393 governing the criminal liability of legal entities, by the entire organization and its domestic suppliers and service providers. This Crime Prevention Model has been certified by BH Compliance for two years from February 2019.
• Continual review and adoption of corporate governance practices, as reflected in the Appendix to General Regulation 385 issued by the Financial Market Commission, and the approval of the new Internal Regulations governing Occupational Health and Safety, which include the latest labor regulations in Chile, and other regulations.
QUALITY AND ENVIRONMENTAL CERTIFICATIONS (ISO)
CSAV has achieved certified Quality and Environmental compliance with the ISO 9001 and ISO 14001 standards since 1998, and with the 2015 version since 2018.
CSAV must contract an independent external audit to review its Integrated Management System annually, in order to maintain its certification, which is currently performed by Lloyd’s Register Quality Assurance (LRQA).
CSAV achieved an unqualified external audit report during 2019, where LRQA verified that “the audited processes comply with the regulatory requirements and CSAV’s Integrated Management System is being effective in achieving the expected results”.
Therefore, LRQA confirmed the Quality and Environment certificates, and extended their validity until 2022.
2019 Annual Report 67 Additional Information
68 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 69 Basic Information
Company name Compañía Sud Americana de Vapores S.A.
Ticker code Vapores
Taxpayer ID number 90.160.000 - 7
Legal nature Publicly listed corporation
Securities registry number 76
Legal address Santiago and Valparaiso, Chile
INCORPORATION
Compañía Sud Americana de Vapores S.A. (hereinafter also “CSAV” or the “Company”) was incorporated by public instrument dated October 4, 1872, signed before Valparaíso Notary Julio César Escala. This was authorized by Supreme Decree 2,347 dated October 14, 1872. These documents were registered on page 486 number 147 and page 497 number 148, respectively, of the Valparaíso Chamber of Commerce on October 15, 1872. Subsequently, the Company was registered on page 4228 number 2260 of the Santiago Registry of Commerce in 1959.
PROPERTIES AND FACILITIES
Property, Plant and Equipment
Use Address Location Surface area (m2) Registration
Offices Hendaya 60, Offices 1401-1402 Santiago 1,048 No. 214-151 & 152
Investment Properties
Use Address Location Surface area (m2) Registration
Plaza Sotomayor 50 Valparaíso 10,010 No. 8-004
Offices Blanco 937, Offices 501 & 502 Valparaíso 1,582 No. 12-45 & 46
Rua Brás Cubas 37, Room 46 Santos, Brasil 153 Cep 11013-919
Warehouse Tomas Ramos 22 Valparaíso 1,046 No. 90-22
Land Blanco 509 to 529 and 541 to Valparaíso 1,480 No. 8-001 & 002 545
70 Compañía Sud Americana de Vapores S.A. Compliance Framework
Governmental regulation, international treaties, legal standards and each country’s national regulations significantly impact the countries where the Company operates or has established a presence. However, it is difficult to reasonably quantify the cost of continually complying with these regulations or to measure their impact on the Company’s revenue or on the value of its assets and investments, including its interest in Hapag-Lloyd. Nevertheless, CSAV expects to obtain the permits and authorizations required to continue operating.
2019 Annual Report 71 Shipping in Chile is mainly governed by the following laws: • Law 18,680 dated January 11, 1988, which replaced the latest version of the Third Book of the Chilean Commercial Code, which was first issued in 1865. The current version of the Third Book was modified by Law 20,667 of 2013, which regulates insurance contracts, and Law 20,720 of 2014, which replaced the existing bankruptcy regime with a law on reorganization and liquidation.
• Decree Law 2,222, dated May 31, 1978, which replaced the Navigation Act of 1878. The DL was amended by Law 18,011, dated July 1, 1981; Law 18,454, dated November 11, 1985; Law 18,680, dated January 11, 1988; Law 18,692, dated February 19, 1988; Law 18,892, dated December 23, 1989; Law 19,079, dated September 6, 1991; Law 19,929 dated February 11, 2004; Law 20,070 dated November 8, 2005 and Law 21,066 dated February 16, 2018.
• Decree Law 3,059, dated December 22, 1979, containing the new Merchant Navy Act, which includes standards for cargo reserves and special regulatory and tax standards.
There are also a number of regulations governing various shipping matters, such as shipbuilding and repairs, collision prevention, registering of vessels and marine craft, pilotage and ships’ agents. Environmental matters are covered by the Navigation Act. Additionally, Chile has ratified the International Convention for the Prevention of Pollution from Ships dated 1973 (MARPOL) and the International Convention on Civil Liability for Oil Pollution Damage dated 1969 and its 1992 Protocol.
72 Compañía Sud Americana de Vapores S.A. Several international provisions apply to aspects of the shipping business. These include regulations referring to shipbuilding and operation, the carriage of goods by sea, responsibility for collisions, salvage of vessels and marine crafts, anti-terrorism and anti-collusion regulations, and immunities and exemptions. Thus, the prohibitions in Articles 101 and 102 of the Treaty on the Functioning of the European Union and block exemptions to these joint agreements or “consortia” in terms of regulations issued by the European Commission, as well as the standards of the US Shipping Act (1984) and Federal Maritime Commission regulations, which apply to shipping to and from those countries. The United Nations Convention on a Code of Conduct for Liner Conferences is also applicable.
Finally, the safety standards adopted by the UN-dependent International Maritime Organization (IMO) are also relevant to shipping safety and risk prevention issues, and the need to have vessels inspected and registered by classification societies.
2019 Annual Report 73 Trademarks, Patents and Licenses The main trademark used in 2019 by the Company was “CSAV”. The Company does not own any patents, licenses, franchises, royalties or concessions, and only registers its trademark. CSAV gave Hapag-Lloyd an indefinite license, without any associated royalties, to use the CSAV brand, when it transferred its container business in December 2014.
74 Compañía Sud Americana de Vapores S.A. Stock Market Statistics The Company’s shares are traded on Santiago Exchange, the Chilean Electronic Stock Exchange and the Valparaíso Stock Exchange.
Number of Average Price Market Period Value Traded (Ch$) Shares Traded (Ch$/share) Presence (%)
2017 First Quarter 7,800,664,700 166,672,905,334 21.37 98.89%
Second Quarter 4,482,449,113 116,257,522,341 25.94 100.00%
Third Quarter 6,808,656,950 213,858,206,888 31.41 100.00%
Fourth Quarter 5,992,548,228 195,408,366,372 32.61 100.00%
2018 First Quarter 4,925,621,226 150,286,840,529 30.51 100.00%
Second Quarter 5,419,888,505 134,269,189,934 24.77 100.00%
Third Quarter 4,071,540,890 79,640,191,467 19.56 100.00%
Fourth Quarter 1,693,467,063 35,343,329,661 20.87 100.00%
2019 First Quarter 2,043,146,350 42,764,699,948 20.93 100.00%
Second Quarter 2,023,062,316 43,450,338,644 21.48 100.00%
Third Quarter 5,475,324,773 137,122,609,804 25.04 100.00%
Fourth Quarter 3,603,688,103 92,581,718,289 25.69 100.00%
Source: Chile’s Santiago and Electronic Stock Exchanges
2019 Annual Report 75 Dividend Policy and Payment At the annual general meeting held on April 16, 2004, the shareholders established a dividend policy of distributing 30% of earnings. This policy was also reconfirmed at the shareholders’ meetings for 2005 to 2018 and ratified on April 26, 2019. At these meetings, shareholders also authorized the board to define the timing and value of interim dividends, provided that the Company has earnings and that these have absorbed any accumulated losses.
No dividends have been paid in the last eight years.
EARNINGS DISTRIBUTION
The Company reported net income for the year ended December 31, 2019, of ThUS$ 124,616. Including its 2019 results, the Company has an accumulated deficit of ThUS$ 1,369,360 as of December 31, 2019.
EQUITY
CSAV’s equity as of December 31, 2019, was as follows:
Share capital 3,493,509,703
Accumulated deficit (1,228,876,195)
Other reserves (40,446,403)
Total 2,224,187,105
These figures indicate that the book value of each share was US$0.0604 as of December 31, 2019.
76 Compañía Sud Americana de Vapores S.A. Compensation of the Board, the Directors’ Committee and Senior Executives
At the annual general meeting held on April 26, 2019, shareholders agreed to a UF 100 per meeting fee for attendance at board meetings, with a maximum of one meeting per month, except for the Chairman who receives double that of a director. Plus variable compensation, where each director receives 0.25% of the dividends distributed from earnings for 2019, either as additional mandatory or minimum dividend, except for the Chairman who receives double that of a director, being 0.5% of such dividends.
2019 Annual Report 77 In the event of a change in the composition of the Board, the aforementioned distribution shall be paid in proportion to the number of months (or fraction of a month greater than 15 days) that each director or the Chairman have held that position during 2019.
Each director on the Directors’ Committee receives an attendance fee of UF 33.33 for each committee meeting attended and a variable amount of one third of the distributed dividends payable to him as director for the year. This shall result in 0.25% of the dividend, plus one third of that 0.25% (or the corresponding proportion, as the case may be).
The annual operating budget for the Directors’ Committee and its advisors is the sum of its members’ annual compensation, which is UF 1,200.
The total amount paid by CSAV in fees, profit-sharing and other compensation during 2019 is detailed as follows:
BOARD OF DIRECTORS’ COMPENSATION FOR 2019 AND 2018
Annual Total Chilean Director National ID 2019 2018 US$ US$
48.214.110-2 Alberto Alemán Zubieta 15,007 -
10.672.019-3 Christian Blomstrom Bjuvman 35,172 -
5.718.666-6 Hernán Büchi Buc 47,662 50,987
4.108.676-9 Arturo Claro Fernández 43,550 50,963
7.040.498-2 José De Gregorio Rebeco 47,662 50,963
6.062.786-K Andrónico Luksic Craig 8,259 8,129
5.664.265-K Isabel Marshall Lagarrigue 8,358 50,963
5.569.043-K Gonzalo Menéndez Duque 20,573 42,777
6.525.286-4 Francisco Pérez Mackenna 95,324 101,926
Total 321,566 356,708
BOARD ADVISORS IN 2019 AND 2018
Amount
Advisor Advisory service 2019 2018 US$ US$
Alberto Alemán Zubieta Board advisors 70,000 70,000
Total 70,000 70,000
78 Compañía Sud Americana de Vapores S.A. DIRECTORS’ COMMITTEE COMPENSATION FOR 2019 AND 2018
Annual Total Chilean Director National ID 2019 2018 US$ US$
10.672.019-3 Christian Blomstrom Bjuvman 11,723 -
4.108.676-9 Arturo Claro Fernández 17,254 16,959
7.040.498-2 José De Gregorio Rebeco 6,312 -
5.664.265-K Isabel Marshall Lagarrigue 5,531 16,959
5.569.043-K Gonzalo Menéndez Duque 6,889 12,827
Total 47,708 46,745
The Directors’ Committee did not incur in any expenses for advisory services during 2019 and 2018.
The compensation earned by the Company’s senior executives for 2019 was US$ 2,764,089 (US$ 2,421,557 in 2018), of which US$ 1,689,983 was variable compensation and includes bonuses accrued during the year (US$ 1,215,342 in 2018). The compensation received by the Company’s senior executives for 2019 was US$ 2,499,293 (US$ 2,495,167 in 2018), of which US$ 1,425,187 was variable compensation.
Variable compensation is linked to the fulfillment of commercial, operational or financial targets. It is awarded to those executives that have had a direct effect on these objectives and is defined by the board. CSAV has no special compensation plans or benefits for its senior executives.
SHAREHOLDINGS As of December 31, 2019, the Vice Chairman Andrónico Luksic Craig held an interest in CSAV through companies with controlling interests in the Company.
The Chairman of the Board, Francisco Pérez Mackenna, has 41 personal shares. The Director Arturo Claro Fernández has 2,773 personal shares, his spouse Cecilia Montes Matte has 2,806,951 shares and together they have 27,205,724 shares, through Inversiones Transart S.A., Inversiones Quimetal S.A. and Sociedad Pesquera Holando Chile Ltda., giving them total of 30,015,448 shares. The Director Christian Blomstrom Bjuvman has 8,412,421 personal shares.
The Company’s senior executives do not have any shares in the Company.
2019 Annual Report 79 Directors’ Committee Yearly Report
The committee held 12 ordinary meetings during 2019, (numbers 210 to 213 and 215 to 222) and one extraordinary meeting (number 214), at which it addressed the following matters:
1. Meeting 210, held on January 25, 2019. The committee approved the Directors’ Committee yearly report for 2018. It agreed the schedule of regular meetings with CSAV’s external auditors. It was agreed that these meetings would be held in March, to review the annual financial statements, the external auditors’ report, and the management letter on internal control; in June, to review the external audit plan for the current year; and in August, to review the financial statements as of June 30, 2019 and the limited audit review. The Controller’s report was presented, which explained compliance with the 2018 Audit Plan and Integrated Risk Management. The Legal Compliance Officer presented the compliance report, which informed the committee that the Fourth Monitoring and Recertification process for the Crime
80 Compañía Sud Americana de Vapores S.A. Prevention Model had begun, and that certification would begin shortly for the four crimes included by Law 21,121 into Law 20,393 on the criminal liability of legal entities, which are bribery between individuals, incompatible negotiation, misappropriation and unfair administration.
2. Meeting 211, held on February 27, 2019. The Controller presented the completion of the Action Plan arising from the 2018 Audit Findings, together with the ongoing reviews under the 2019 Audit Plan. The Legal Compliance Officer reported that BH Compliance had recertified the Crime Prevention Model for a further 2 years to February 2021. He also reported that certification had begun for the four crimes included by Law 21,121 into Law 20,393 on the criminal liability of legal entities, which are bribery between individuals, incompatible negotiation, misappropriation and unfair administration. He reported the recent publication in the Official Gazette of Law 21,132, which modernizes and strengthens the public function of the National Fishing Service (Sernapesca), and includes four crimes into Law 20,393, which include water pollution, which could be relevant to the Company’s business. Finally, information regarding a related party transaction with Banco del Estado de Chile was examined and approved without comments. This transaction was the purchase by a third party of a CSAV property at José Tomás Ramos 22, Valparaíso, through a lease with that bank.
3. Meeting 212, held on March 22, 2019. The committee examined the Consolidated Annual Financial Statements for the year ended December 31, 2018, together with the external auditors’ report, and which will be presented at the annual general meeting for 2019. Therefore, representatives of the external audit firm KPMG Chile attended this meeting. KPMG reported that there are no differences in the treatment or accounting balances in the financial statements prepared by CSAV’s management and that its report would contain a clean opinion of the financial position of the Company and its subsidiaries in accordance with IFRS. The committee endorsed the report issued by the external auditors, KPMG Chile, and CSAV’s Consolidated Financial Statements for the year ended December 31, 2018, submitted by management, including additional information in the 2018 CSAV Annual Report. It examined the proposals received from external audit firms KPMG Chile, Ernst & Young (EY) and PricewaterhouseCoopers (PwC), to audit the financial year 2019. It agreed to recommend KPMG Chile to the Board, and subsequently PwC, in order to present their proposal at the annual general meeting for 2019. It also agreed to propose to the Board that Feller-Rate and International Credit Rating (ICR) be appointed as risk rating companies and that the Board propose these to the next annual general meeting. The Controller’s report was presented, which mentioned the ongoing audits. The Legal Compliance Officer reported that the Company’s compliance procedures had been updated during the certification process for the crimes included by Law 21,121 into Law 20,393, and that the Risk Committee will meet in April to analyze these crimes, in addition to those introduced by Law 21,132. The committee, with Mr. Menéndez abstaining,
2019 Annual Report 81 examined and approved without comment the information describing a related party transaction. This was a bridge loan with Quiñenco S.A. for up to US$150 million to finance the purchase of shares in the German shipping company Hapag-Lloyd AG.
4. Meeting 213, held on April 25, 2019. The Controller’s report was presented, which described the status of insurance and agency audits in Brazil. Mr. Eluchans presented the Compliance report regarding the certification status of the crimes included by Law 21,121 into Law 20,393. The Controller gave an extended presentation on the conclusions reached by the Risk Committee, with the advice of experts such as criminal lawyers and domestic and international maritime law experts regarding the crimes described by Law 21,132, which modernizes and strengthens Sernapesca. It concluded that it was appropriate to incorporate into the Company’s Compliance Risk Matrix the crime of water pollution, based on the specific assumptions discussed. Finally, information regarding a related party transaction with Banco del Estado de Chile was examined and approved without comments. This transaction was the purchase by a third party of CSAV properties (offices 401 & 402 in the Tecnopacifico Building at Blanco 937, Valparaíso), through a lease with that bank.
5. Extraordinary meeting 214, held on April 26, 2019. This meeting was especially called after the annual general meeting. Information regarding a related party transaction (“RPT”) with Banco del Estado de Chile was re-examined and approved without comments. This transaction was the purchase by a third party of CSAV properties (offices 401 & 402 in the Tecnopacifico Building at Blanco 937, Valparaíso) through a lease with that bank. This information had already been examined by the committee at its ordinary meeting on April 25, 2020. However, Management considered it appropriate to re-examine this RPT after the Annual General Shareholders’ Meeting held on April 26, due to the appointment of a new Independent Director. The Extraordinary meeting held on April 26 also examined and approved without comments information regarding an RPT using finance from Banco Consorcio and
82 Compañía Sud Americana de Vapores S.A. Compañía de Seguros de Vida Consorcio Nacional de Seguros for up to US$100 million. Finally, the composition of the Company’s Board of Directors was reported, following the Annual General Shareholders’ Meeting where Mr. Christian Blomstrom Bjuvman was appointed as the new Independent Director.
6. Meeting 215, held on May 23, 2019. The 5733rd Ordinary Board Meeting on April 26 appointed a new Directors’ Committee following the appointment of the Board of Directors at the Annual General Shareholders’ Meeting held on April 26, 2019. Therefore, the committee was composed of Mr. Blomstrom as Chairman, in his capacity as an independent director, Mr. Claro and Mr. Menéndez. The committee examined the interim consolidated financial statements as of March 31, 2019 and their principal changes with respect to the previous period without making any comments. It recommended that the Board of Directors approve them, and empowered its Chairman to report this to the Board of Directors. Mr. Eluchans presented the Compliance report and advised the committee of progress with crime certification, which will shortly include the crime of water pollution, as discussed in previous committee meetings. The Chairman proposed to review the Controller’s report at the next meeting, due to the length of the current agenda, which was approved by those present. Finally, related party transactions as of March 31, 2019 were reviewed, including those under the Customary Transactions Policy.
7. Meeting 216, held on June 27, 2019. Representatives of KPMG Chile presented progress with the 2019 Audit Plan, in accordance with the plan for their attendance at committee meetings (NCG 385 of the FMC). KPMG Chile presented the new accounting standards implemented with effect from January 1, 2019 (IFRS 16 and IFRIC 23) and January 1, 2020 (amendments to the conceptual framework references, IFRS 3, IAS 1 and IAS 8), and their impact on CSAV and Hapag-Lloyd. The Legal Compliance Officer reported on the certification status of the crimes included by Law 21,121 into Law 20,393, and that this process will include the crime of water pollution. The Controller’s report was presented, which explained the revisions to the inventory process and the accounting and consolidation sub-process. He then commented on the current audits and progress with the 2019 Audit Plan, then the committee agreed to incorporate a new external resource into the Controller’s team.
8. Meeting 217, held on July 25, 2019. The recent death of Mr. Gonzalo Menéndez Duque was recorded in the minutes. He had been a member of the CSAV Board of Directors and of the Directors’ Committee for the last few years. The committee praised the
2019 Annual Report 83 commitment with which Mr. Menéndez contributed to CSAV, and the dedication, talent and thoroughness with which he performed his duties as a director. Mr. Eluchans presented the Compliance report, including an update on the current certification process. He also mentioned that BH Compliance had begun the first post-certification monitoring exercise of the Crime Prevention Model, and other matters reported every month to the committee, such as the complaints channel. Mr. Salgado presented the Controller’s report, in particular the results of the Agency audit in Ecuador, the current reviews of the Colombian Agency and human resources processes.
9. Meeting 218, held on August 22, 2019. Mr. José De Gregorio Rebeco was appointed as the new member of the Director’s Committee to replace the late Mr. Menéndez. He was appointed by Mr. Blomstrom, as the only independent director of CSAV, in accordance with Section 9 of Article 50 bis of Law 18,046 on Corporations, at the Ordinary Board Meeting number 5736 held on July 26, 2019. Accordingly, the CSAV Directors’ Committee was composed of the directors Mr. Blomstrom as Chairman, in his capacity as an independent director, Mr. Claro and Mr. De Gregorio. Representatives of the external audit firm KPMG Chile presented the unqualified results of their limited review of the interim statement of financial position as of June 30, 2019. The committee heard presentations from CSAV’s management and its external auditors (KPMG), then examined the Interim Consolidated Financial Statements as of June 30, 2019, the management analysis and the unqualified limited review report from the external auditors. It recommended that the Board of Directors approve them, and empowered its Chairman to report this to the Board of Directors. The Chairman proposed to review the Controller’s report at the next meeting, due to the length of the current agenda, which was approved by those present. Nevertheless, Mr. Salgado briefly referred to ongoing reviews of the executive payroll, the car carrier business and information technology. The Legal Compliance Officer reported on the first post- recertification monitoring report by BH Compliance regarding the Crime Prevention Model, which was favorable and unqualified. He also reported on the status of the current crime prevention certification process.
10. Meeting 219, held on September 30, 2019. The Controller’s report was presented, which explained the results from the general payroll and Colombian Agency reviews. He also referred to audits of internal control within IT, Human Resources processes (executive payroll), the car carrier business and the Peruvian Agency. Mr. Eluchans presented the Compliance report, the status of the crime prevention certification process and the update of all the Company’s compliance procedures.
84 Compañía Sud Americana de Vapores S.A. 11. Meeting 220, held on October 24, 2019. The Controller’s report was presented, which included a summary of the executive payroll audit, several draft review reports, plans for the next audits, monitoring management’s commitments in response to the audit findings as of September 2019 and risk management. The Legal Compliance Officer reported on the status of the current crime prevention certification process and that the second stage of this process will begin shortly. The committee appointed KPMG Chile to prepare the Company’s Business Continuity Plan, in accordance with Article 242 of Law 18,045 on the Stock Market. It empowered the Chairman, Mr. Blomstrom, to report this agreement to the Board of Directors at its next meeting. Management presented the payment status from the sale of Norgistics Chile S.A. Information regarding this sale was examined by the committee at its November 2017 meeting as a related party transaction (“RPT”). The committee, with Mr. De Gregorio abstaining, examined and approved without comments an RPT to extend a bridge loan from Quiñenco S.A. from US$150 million to US$330 million, to acquire shares in the German shipping company Hapag-Lloyd. Information regarding this loan was examined by the committee at its March 2019 meeting.
12. Meeting 221, held on November 21, 2019. The committee reviewed the interim consolidated financial statements as of September 30, 2019, and the corresponding notes. It recommended that the Board of Directors approve them, and authorized its Chairman to report this to the Board of Directors. The Chairman proposed to review the Controller’s report at the next meeting, due to the length of the current agenda, which was approved by those present. Nevertheless, Mr. Salgado briefly referred to ongoing reviews of the Peruvian Agency and information technology. The Legal Compliance Officer reported on the crime prevention certification process covering bribery between individuals, incompatible negotiation, misappropriation, unfair administration and water pollution. He referred to his report from the previous meeting, and indicated that BH Compliance was expected to conclude the second stage of the certification process shortly, then begin the compliance tests, and finally issue the certification report. Related party transactions as of September 30, 2019, were reviewed, including those under the Customary Transactions Policy. The committee examined and approved without comment information describing a related party transaction consisting of a loan for US$35 million from Banco Consorcio to acquire shares in the German shipping company Hapag-Lloyd. It approved the schedule of ordinary meetings for 2020.
2019 Annual Report 85 13. Meeting 222, held on December 19, 2019. The Controller’s report was presented, and the Audit Plan and Budget for 2020 was approved. He also presented the audit results regarding IT, operations and the Peruvian Agency. The Legal Compliance Officer reported on the status of the current crime prevention certification process, that most of the new compliance procedures were complete and that employee training on these procedures had begun. The committee examined the compensation policy for managers, executives and employees, in accordance with number 4) of section 8 of Article 50 bis of Law 18,046 on Corporations.
86 Compañía Sud Americana de Vapores S.A. COMMENTS AND PROPOSALS BY THE DIRECTORS’ COMMITTEE There are no comments or proposals by the Directors’ Committee nor by the shareholders regarding the Company’s business during 2019 that should be included in this Report. This was confirmed by the committee in its Annual Report, in accordance with Article 74, paragraph 3, of Law 18,046.
BOARD TRAINING
Board training during 2019 followed Board Training Procedure and covered “Hazardous maritime cargo”
2019 Annual Report 87 Material Events CSAV reported the following matters as Material Events to the Financial Market Commission during 2019.
88 Compañía Sud Americana de Vapores S.A. APRIL 26, 2019 APPOINTMENT OF THE BOARD AND THE DIRECTORS’ COMMITTEE
In accordance with Articles 9 and 10-2 of the Securities Market Act and General Standard 30, as I am duly authorized, I hereby inform this Commission of the following material event at Compañía Sud Americana de Vapores S.A. (“CSAV”):
I Appointment of the Board of Directors At the annual general meeting held on this date, the shareholders appointed the Board of Directors for a new period of three years. The new Board of Directors became: • Andrónico Luksic Craig • Francisco Pérez Mackenna • Gonzalo Menéndez Duque • Hernán Büchi Buc • José De Gregorio Rebeco • Arturo Claro Fernández • Christian Blomstrom Bjuvman
II Chairman and Vice-Chairman A board meeting was held immediately after the annual general meeting, where Mr. Francisco Pérez Mackenna was elected Chairman and Mr. Andrónico Luksic Craig was elected Vice-Chairman.
III Directors’ Committee At the same board meeting, Mr. Christian Blomstrom Bjuvman was appointed to the Directors’ Committee as the only independent director, in accordance with Article 50 bis of Law 18,046, the Corporations Act, and he appointed Mr. Arturo Claro Fernandez and Mr. Gonzalo Menéndez Duque as the other members of this Committee.
AUGUST 23, 2019 APPOINTMENT OF NEW DIRECTOR
In accordance with Articles 9 and 10-2 of the Securities Market Law and General Standard 30, as I am duly authorized, I hereby inform this Commission of the following material event at Compañía Sud Americana de Vapores S.A. (“CSAV”):
As a result of the death of Mr. Gonzalo Menéndez Duque, a vacancy arose on CSAV’s Board of Directors. At a board meeting held today, the Board appointed Mr. Alberto Alemán Zubieta to replace him, in accordance with Article 32 of the Corporations Act 18,046, who had served as an advisor to the Board until that date.
The Board of Directors acknowledged the commitment of Mr. Gonzalo Menéndez Duque to CSAV, especially in its most difficult moments, and the dedication, talent and thoroughness with which he carried out his duties as a director and member of the Directors’ Committee.
2019 Annual Report 89 Corporate Structure As of December 31, 2019
Compañía Sud Americana de Vapores S.A.
100% 51% 99% 100% 99% 100% 100% CSAV Germany Compañía Corvina Norgistics CSAV Austral 1% 1% Norgistics Tollo Shipping Container Naviera Río Shipping Co. (China) Ltd. SpA Holding S.A. Co. S.A. Holding GmbH Blanco S.A. S.A. (Shenzhen)
49%
27.79% 98.9715% 99.9853%
Hapag-LLoyd Navibras Comercial Norgistics Maritima e AG 1.0248% Afretamentos Ltda. México S.A.
0.0037% 0.0147%
Associate Subsidiaries
90 Compañía Sud Americana de Vapores S.A. Information on Associates and Subsidiaries Data as of December 31, 2019 ASSOCIATE
Company Name Hapag-Lloyd AG (“Hapag Lloyd”)
Legal Nature Publicly listed corporation
Company Information Jurisdiction Germany
Subscribed and Paid Capital Euro 175,760,293
CSAV S.A.’s Interest 27.79%
Chairman Michael Behrendt
Maya Schwiegershausen-Güth Annabell Kröger Óscar Hasbún Martínez (CEO, CSAV) Sabine Nieswand Turqi Alnowaiser Dr. Rainer Klemmt-Nissen H.E. Sheikn Ali Bin Jassim Al-Thani Arnold Lipinski Supervisory Board and Chief Directors Jutta Diekamp Francisco Pérez Mackenna (Chairman of Executive Officer Nicola Gehrt the Board, CSAV) Uwe Zimmermann Klaus Schroeter Karl Gernandt Felix Albrecht
Chief Executive Officer Rolf Habben Jansen
Participate in maritime trade through liner services, undertaking logistics operations, undertaking shipping, vessel brokering, freight brokering, storage and agency services, and, if applicable, operating terminals, buying, selling, developing, improving and leasing Business Purpose property, providing data-processing services, and all other commercial activities related to the foregoing, unless that requires prior approval. The main business is shipping containers on owned and chartered vessels.
SUBSIDIARIES
Company Name CSAV Germany Container Holding GmbH
Legal Nature Limited liability company
Company Information Jurisdiction Germany
Subscribed and Paid Capital US$ 84,449.71
CSAV S.A.’s Interest 100%
Óscar Hasbún Martínez (CEO, CSAV) Management Managers Pablo Bauer Novoa
Business Purpose Ownership and management of investments in companies, especially those dedicated to container shipping.
Business Relationships / Loan for EUR 791.6 million plus accrued interest. Significant Contracts
2019 Annual Report 91 Company Name CSAV Austral SpA
Legal Nature Private limited company
Company Information Jurisdiction Chile
Subscribed and Paid Capital US$ 100,539,773.57
CSAV S.A.’s Interest 51%
Chairman Andrés Kulka Kuperman
Héctor Arancibia Sánchez Christian Seydewitz Munizaga Directors and Chief Executive Directors Sergio Hurtado Olavarría Officer Vivien Swett Brown Rene Scholem Appel
Chief Executive Officer Héctor Arancibia Sánchez
Business Purpose Maritime, ground and air transport and all types of shipping services.
Company Name Compañía Naviera Rio Blanco S.A.
Legal Nature Private limited corporation
Company Information Jurisdiction Chile
Subscribed and Paid Capital US$ 3,550,000
CSAV S.A.’s Interest 100% (Direct and Indirect)
Chairman Roberto Larraín Sáenz (CFO, CSAV)
Directors and Chief Executive Edmundo Eluchans Aninat (General Counsel, CSAV) Directors Officer Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
Chief Executive Officer Edmundo Eluchans Aninat (General Counsel, CSAV)
Maritime transport, as vessel owner or vessel charterer or by any other means, both in Chile and abroad, entering into shipping Business Purpose contracts, chartering and leasing vessels; acquiring any maritime vessel; providing services related to maritime transport and trade. This company was dormant this year.
92 Compañía Sud Americana de Vapores S.A. Company Name Navibras Comercial Maritima e Afretamentos Ltda.
Legal Nature Limited liability company
Company Information Jurisdiction Brazil
Subscribed and Paid Capital US$ 1,259,652.22
CSAV S.A.’s Interest 100% (Indirect)
Management Legal Representative Jobelino Vitoriano Locateli
Shipping agencying. Business Purpose This company was dormant this year.
Company Name Tollo Shipping Co. S.A.
Legal Nature Private limited corporation
Company Information Jurisdiction Panama
Subscribed and Paid Capital US$ 383,677,650.79
CSAV S.A.’s Interest 100%
Chairman Orelys Massiel Cedeño B.
Directors and Chief Executive Edmundo Eluchans Aninat (General Counsel, CSAV) Roberto Larraín Sáenz (CFO, CSAV) Officer Directors Mirtha C. de Fernández Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
a) Purchasing, selling, chartering and generally managing vessels and operating shipping lines in Panama or any part of the world. b) Operating maritime agencies and maritime business in general in Panama or abroad. c) Purchasing, selling, bartering, leasing and trading real or personal property, merchandise of any kind and any other commercial or financial transactions, related to Business Purpose and dependent on this purpose, and investing in other Panamanian or foreign companies. d) Purchasing and trading of shares or securities and any other commercial, maritime, financial, or movable transactions permitted by the laws of the Republic of Panama, or that may be permitted in the future. This is a holding company within the CSAV group.
2019 Annual Report 93 Company Name Corvina Shipping Co. S.A.
Legal Nature Private limited corporation
Company Information Jurisdiction Panama
Subscribed and Paid Capital US$ 493,258,458.40
CSAV S.A.’s Interest 100%
Chairman Orelys Massiel Cedeño B.
Directors and Chief Executive Edmundo Eluchans Aninat (General Counsel, CSAV) Roberto Larraín Sáenz (CFO, CSAV) Officer Directors Mirtha C. de Fernández Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
a) Purchasing, selling, chartering and generally managing vessels and operating shipping lines in Panama or any part of the world. b) Operating maritime agencies and maritime business in general in Panama or abroad. c) Purchasing, selling, bartering, leasing and trading real or personal property, merchandise of any kind and any other commercial or financial transactions, related to Business Purpose and dependent on this purpose, and investing in other Panamanian or foreign companies. d) Purchasing and trading of shares or securities and any other commercial, maritime, financial, or movable transactions permitted by the laws of the Republic of Panama, or that may be permitted in the future. This is a holding company within the CSAV group.
Company Name Norgistics Holding S.A.
Legal Nature Private limited corporation
Company Information Jurisdiction Chile
Subscribed and Paid Capital US$ 5,000,000.00
CSAV S.A.’s Interest 100% (Direct and Indirect)
Chairman Roberto Larraín Sáenz (CFO, CSAV)
Directors and Chief Executive Edmundo Eluchans Aninat (General Counsel, CSAV) Directors Officer Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
Chief Executive Officer Edmundo Eluchans Aninat (General Counsel, CSAV)
Investing and participating in Chilean or foreign companies involved in logistics services, shipping agencies or sea, air, ground or Business Purpose multimodal transport services.
94 Compañía Sud Americana de Vapores S.A. Company Name Norgistics (China) Ltd. (Shenzhen)
Legal Nature Limited liability company
Company Information Jurisdiction China
Subscribed and Paid Capital US$ 1,000,000.00
CSAV S.A.’s Interest 100%
Tomás Tafra Rioja Roberto Larraín Sáenz (CFO, CSAV) Directors and Chief Executive Legal Representative Edmundo Eluchans Aninat (General Counsel, CSAV) Officer Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
Booking and stuffing containers, repairing and maintaining containers, coordinating operations with terminals and warehouses, Business Purpose receiving cargo and contracting services from transportation companies.
Company Name Norgistics Mexico S.A.
Legal Nature Variable capital corporation
Company Information Jurisdiction Mexico
Subscribed and Paid Capital US$ 3,406,252.00
CSAV S.A.’s Interest 100% (Indirect)
Roberto Larraín Sáenz (CFO, CSAV) Management Legal Representative Edmundo Eluchans Aninat (General Counsel, CSAV) Hernán Martínez Fermandois (Senior Vice President, Automobiles, CSAV)
Non-vessel operating common carrier (NVOCC), freight forwarder and ground transport brokering. Maritime and intermodal freight Business Purpose brokerage.
2019 Annual Report 95 SUMMARY OF SUBSIDIARY OWNERSHIP
Investing Company
Issuing Company Compañía Sud Americana de Compañía S.A. Vapores Holding Container Germany CSAV GmbH AG Hapag-Lloyd S.A. Shipping Co. Tollo Corvina S.A. Shipping Co. Holding S.A. Norgistics Others Total
CSAV Germany Container Holding GmbH 100.00% 100%
Hapag-Lloyd AG 27.79% 72.21% 100%
CSAV Austral SpA 51.00% 49.00% 100%
Tollo Shipping Co. S.A. 100.00% 100%
Corvina Shipping Co. S.A. 100.00% 100%
Compañía Naviera Rio Blanco S.A. 99.00% 1.00% 100%
Norgistics (China) Ltd. [Shenzhen] 100.00% 100%
Norgistics Holding S.A. 99.00% 1.00% 100%
Norgistics Mexico S.A. 99.9853% 0.0147% 100%
Navibras Comercial Marítima e Afretamentos Ltda. 98.9715% 0.0037% 1.0248% 100%
On April 3, 2019, the subsidiary Norgistics Perú S.A.C. was liquidated.
96 Compañía Sud Americana de Vapores S.A. INVESTMENT AS A PERCENTAGE OF THE PARENT COMPANY’S TOTAL ASSETS
Investing Company
Issuing Company Compañía Sud Americana de Compañía S.A. Vapores Holding Container Germany CSAV GmbH S.A. Shipping Co. Tollo Corvina S.A. Shipping Co. Holding S.A. Norgistics
CSAV Germany Container Holding GmbH 26.37%
Hapag-Lloyd AG 100.00%
CSAV Austral SpA 2.62%
Tollo Shipping Co. S.A. -29.98%
Corvina Shipping Co. S.A. 29.98%
Compañía Naviera Rio Blanco S.A. -0.09% 0.00%
Norgistics (China) Ltd. [Shenzhen] 0.04%
Norgistics Holding S.A. 0.07% 0.00%
Norgistics Mexico S.A. 21.05% 0.00%
Navibras Comercial Marítima e Afretamentos Ltda. -223.97% 0.00% -0.24%
2019 Annual Report 97 Financial Reports
98 Compañía Sud Americana de Vapores S.A. FINANCIALCOMPAÑÍA SUD AMERICANA STATEMENTS DE VAPORES S.A. AND SUBSIDIARIES
2019 Annual Report 99 100 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 101 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. AND SUBSIDIARIES Consolidated Statements of Financial Position As of December 31, 2019 and 2018
As of December 31, 2019 As of December 31, 2018 ASSETS Note ThUS$ ThUS$
CURRENT ASSETS
Cash and cash equivalents 7 53,619 24,339
Other non-financial assets 13 117 1,222
Trade and other receivables 9 16,234 17,654
Receivables from related parties 10 74 67
Inventories 11 1,884 4,832
Current tax assets 20 356 261
Disposal groups classified as held for sale 35 306 784
Total current assets 72,590 49,159
NON-CURRENT ASSETS
Other financial assets 8 63 63
Other non-financial assets 13 1 1
Equity method investments 15 2,168,383 1,939,465
Intangible assets other than goodwill 16 - -
Goodwill 17 17 17
Property, plant and equipment 18 10,969 2,395
Investment property 19 10,870 12,198
Deferred tax assets 21 254,487 254,579
Total non-current assets 2,444,790 2,208,718
TOTAL ASSETS 2,517,380 2,257,877
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
102 Compañía Sud Americana de Vapores S.A. As of December 31, 2019 As of December 31, 2018 LIABILITIES AND EQUITY Note ThUS$ ThUS$
CURRENT LIABILITIES
Other financial liabilities 22 53,911 11,524
Trade and other payables 23 11,132 10,226
Payables to related payables 10 30,301 104
Other provisions 24 6,085 2,038
Current tax liabilities 20 947 29
Employee benefit provisions 26 1,528 1,556
Other non-financial liabilities 25 3,997 5,617
Disposal groups classified as held for sale 35 81
Total current liabilities 107,982 31,136
NON-CURRENT LIABILITIES
Other financial liabilities 22 173,696 84,189
Other provisions 24 11,000 11,935
Deferred tax liabilities 21 502 254
Other non-financial liabilities 25 13 160
Total non-current liabilities 185,211 96,538
TOTAL LIABILITIES 293,193 127,674
EQUITY
Issued capital 28 3,493,510 3,493,510
Retained earnings (accumulated deficit) 28 (1,228,876) (1,353,413)
Other reserves 28 (40,447)
Equity attributable to owners 2,224,187
TOTAL EQUITY 2,224,187 2,130,203
TOTAL LIABILITIES AND EQUITY 2,517,380 2,257,877
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
2019 Annual Report 103 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2019 and 2018
For the year ended December 31,
STATEMENT OF INCOME Note 2019 2018 ThUS$ ThUS$
NET INCOME (LOSS) FOR THE YEAR
Revenue 29 92,955 91,436
Cost of sales 29 (93,878) (87,187)
Gross margin (923) 4,249
Other income 30 1,098 1,306
Administrative expenses 29 (12,156) (10,546)
Other gains (losses) 1,317 8,691
Net operating income (loss) (10,664) 3,700
Finance income 31 592 660
Finance cost 31 (10,905) (5,537)
Share of income (loss) of equity method associates 15 147,812 13,974 and joint ventures
Exchange differences 32 (23) (1,188)
Net income (loss) before taxes 126,812 11,609
Income tax benefit (expense) from continuing operations 21 (1,271) 7,092
Net income (loss) from continuing operations 125,541 18,701
Net income (loss) from discontinued operations 35 (925) (453)
NET INCOME (LOSS) FOR THE YEAR 124,616 18,248
Net income (loss) attributable to:
Net income (loss), attributable to owners of the company 124,616 18,248
NET INCOME (LOSS), ATTRIBUTABLE TO NON-CONTROLLING - - INTEREST
NET INCOME (LOSS) FOR THE YEAR 124,616 18,248
Basic earnings per share
Basic earnings (loss) per share from continuing operations 34 0.0034 0.00051
Basic earnings (loss) per share 34 0.0034 0.00051
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
104 Compañía Sud Americana de Vapores S.A. For the year ended December 31,
STATEMENT OF COMPREHENSIVE INCOME 2019 2018 ThUS$ ThUS$
Net income (loss) for the year 124,616 18,248
COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX:
Exchange differences on translation of foreign operations
Gain (loss) from exchange differences on translation of foreign operations, before (2,077) (4,709) tax
Other comprehensive income (loss), before tax, foreign exchange differences on (2,077) (4,709) translation of foreign operations
CASH FLOW HEDGES
Gain (loss) on cash flow hedges, before tax (3,969) (6,686)
Other comprehensive income (loss), before tax, cash flow hedges (3,969) (6,686)
Actuarial gains (losses) for defined benefit plans, before tax (17,696) 3,488
Other comprehensive income (loss), before tax (23,742) (7,907)
INCOME TAX RELATING TO COMPONENTS OF OTHER COMPREHENSIVE INCOME (LOSS):
Income tax relating to cash flow hedges (204) 204
Total income tax relating to components of other comprehensive income (loss) (204) 204
Other comprehensive income (loss) for the period (23,946) (7,703)
Total comprehensive income (loss) for the period 100,670 10,545
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Owners of the company 100,670 10,545
Non-controlling interest - -
Total comprehensive income (loss) for the year 100,670 10,545
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
2019 Annual Report 105 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2019 and 2018
For the year ended December 31,
Statement of Cash Flows Note 2019 2018 ThUS$ ThUS$
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Classes of revenue from operating activities
Proceeds from sales of goods and services 91,326 98,735
Other income from operating activities 1,082 1,361
Classes of payments from operating activities
Payments to suppliers for goods and services (59,443) (112,112)
Payments to and on behalf of employees (5,536) (4,876)
Other payments for operating activities (56) (8,569)
Net cash flows used in operations 27,373 (25,461)
Income taxes paid (refunded) (19) (561)
Other cash inflows (outflows) 6 (17)
NET CASH FLOWS PROVIDED BY (USED IN) OPERATING 27,360 (26,039) ACTIVITIES
Cash flows provided by (used in) investing activities
Cash flows arising from the loss of control of subsidiaries 14 - 549
Other payments to acquire interest in joint ventures 15 (120,339) (28,492)
Proceeds from sale of property, plant and equipment 2,176 10,771
Purchases of property, plant and equipment 18 (16) (3)
Interest received 592 660
Dividends received 15 8,043 30,244
Net cash flows provided by (used in) investing activities (109,544) 13,729
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES
Proceeds from long-term loans 99,801 -
Proceeds from long-term loans 34,554 31,354
Loans from related parties 10 60,000 -
Loan repayments (10,000) (31,500)
Payment of finance lease liabilities 22 (32,571) -
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
106 Compañía Sud Americana de Vapores S.A. Loan repayments to related parties (30,000) -
Interest paid 22 (9,234) (4,909)
Other cash inflows (outflows) (1,078) -
Net cash flows provided by (used in) financing activities 111,472 (5,055)
Increase (decrease) in cash and cash equivalents, before 29,288 (17,365) effect of exchange rate changes
Effect of exchange rate changes on cash and cash equivalents (8) (737)
Increase (decrease) in cash and cash equivalents 29,280 (18,102)
Cash and cash equivalents at beginning of period 7 24,339 42,441
Increase (decrease) in cash and cash equivalents 29,280 (18,102)
Cash and cash equivalents at end of period 7 53,619 24,339
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
2019 Annual Report 107 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2019 and 2018
Other Reserves
Reserve for Actuarial Retained Cash Flow Gains and Other Issued Translation Total Other Earnings Hedge Losses on Miscellaneous Total Equity Capital Reserve Reserves (Accumulated Reserve Defined- Reserves ThUS$ ThUS$ ThUS$ ThUS$ Deficit) ThUS$ Benefit ThUS$ ThUS$ Plans ThUS$
Opening balance, current period (January 3,493,510 (11,308) (3,233) 1,068 3,579 (9,894) (1,353,413) 2,130,203 1, 2019)
CHANGES IN EQUITY
Net income (loss) for the year ------124,616 124,616
Other comprehensive income (loss) - (2,077) (4,173) (17,696) - (23,946) - (23,946)
Total comprehensive income (loss) - (2,077) (4,173) (17,696) - (23,946) 124,616 100,670
Increase (decrease) due to transfers and - - - (6,607) (6,607) (79) (6,686) other changes
Total changes in equity - (2,077) (4,173) (17,696) (6,607) (30,553) 124,537 93,984
CLOSING BALANCE AS OF DECEMBER 31, 3,493,510 (13,385) (7,406) (16,628) (3,028) (40,447) (1,228,876) 2,224,187 2019
The attached notes 1-39 are an integral part of these Consolidated Financial Statements.
108 Compañía Sud Americana de Vapores S.A. Other Reserves
Reserve for Actuarial Retained Cash Flow Gains and Other Issued Translation Total Other Earnings Hedge Losses on Miscellaneous Total Equity Capital Reserve Reserves (Accumulated Reserve Defined- Reserves ThUS$ ThUS$ ThUS$ ThUS$ Deficit) ThUS$ Benefit ThUS$ ThUS$ Plans ThUS$
Opening balance, prior period (January 1, 3,493,510 (6,714) 3,249 (2,420) 1,493 (4,392) (1,371,661) 2,117,457 2018)
CHANGES IN EQUITY
Net income (loss) for the year ------18,248 18,248
Other comprehensive income (loss) - (4,709) (6,482) 3,488 - (7,703) - (7,703)
Total comprehensive income (loss) - (4,709) (6,482) 3,488 - (7,703) 18,248 10,545
Increase (decrease) due to transfers and - 115 - - 2,086 2,201 - 2,201 other changes
Total changes in equity - (4,594) (6,482) 3,488 2,086 (5,502) 18,248 12,746
Closing balance as of December 31, 2018 3,493,510 (11,308) (3,233) 1,068 3,579 (9,894) (1,353,413) 2,130,203
The attached notes 1-39 are an integral part of these Consolidated Financial Statements
2019 Annual Report 109 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 1 GENERAL INFORMATION
Compañía Sud Americana de Vapores S.A. (hereinafter “CSAV” or “the Company”), Taxpayer ID No. 90.160.000-7, is a publicly-held corporation registered under number 76 in the Securities Registry of the Chilean Financial Market Commission (CMF), formerly the Superintendency of Securities and Insurance, and supervised by that entity. The Company’s registered address is Hendaya 60, piso 14, Las Condes, Santiago, Chile and its stock is listed on Santiago Exchange (since 1893) and the Chilean Electronic Exchange.
The Company was founded in Valparaíso in 1872. Its main business is maritime cargo transport, mainly containers, although it also transports automobiles and other wheeled cargo. The car carrier business is developed directly by the Company, while the container shipping business is operated entirely by Hapag-Lloyd AG and its subsidiaries (hereinafter “HLAG”), which is headquartered in Hamburg, Germany. As of December 31, 2019, CSAV is the largest shareholder of this entity, with a 27.79% stake. In addition, the Company has signed an agreement to jointly control HLAG with two other shareholders, which together hold approximately 71.05% of the German company.
Hapag-Lloyd AG is one of the five largest container shipping companies in the world, covering all major global routes, with consolidated annual sales of over US$14.1 billion in 2019. For CSAV, its investment in HLAG is a joint venture that is presented in the Consolidated Financial Statements using the equity method.
CSAV is controlled by the Quiñenco Group through the following companies:
Company Ownership Interest No. of Shares
Quiñenco S.A. 20.42% 7,512,081,524
Inversiones Rio Bravo S.A. 33.86% 12,460,691,856
Inmobiliaria Norte Verde S.A. 7.17% 2,639,009,900
Total Quiñenco Group 61.45% 22,611,783,280
As of December 31, 2019 and 2018, the Company and its subsidiaries had a total of 42 and 41 employees, respectively. For the year ended December 31, 2019, CSAV and subsidiaries (hereinafter the “CSAV Group”) had an average of 42 employees, based mainly at its offices in Chile.
110 Compañía Sud Americana de Vapores S.A. NOTE 2 PRESENTATION BASIS OF THE CONSOLIDATED FINANCIAL STATEMENTS
The significant accounting policies adopted for the preparation of these Consolidated Financial Statements are described below.
(A) STATEMENT OF COMPLIANCE
The Consolidated Financial Statements as of December 31, 2019 and 2018, have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), issued by the International Accounting Standards Board (IASB).
The Consolidated Financial Statements as of December 31, 2019, presented in this report were approved by the Company’s board of directors on March 20, 2020.
In the preparation of these Consolidated Financial Statements as of December 31, 2019, management has utilized to the best of its knowledge its information and understanding of the standards and interpretations applied and the current facts and circumstances.
(B) BASIS OF PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These Consolidated Financial Statements have been prepared in accordance with IFRS, largely on a historical cost basis, except for items recognized at fair value such as derivative instruments. The carrying amounts of assets and liabilities hedged with transactions that qualify for hedge accounting are adjusted to reflect changes in the fair value in relation to the hedged risks.
These Consolidated Financial Statements are expressed in United States dollars (USD), which is the functional currency of both the CSAV Group and the HLAG joint venture. The figures in these statements have been rounded to thousands of United States dollars (ThUS$).
The accounting policies defined by CSAV and adopted by all consolidated subsidiaries, based on certain critical accounting estimates for quantifying some assets, liabilities, income, expenses and commitments, have been used in the preparation of these Consolidated Financial Statements. The areas that involve a greater degree of judgment or complexity, or the areas in which the assumptions and estimates are significant for the Consolidated Financial Statements are detailed as follows:
2019 Annual Report 111 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
1. The evaluation of possible impairment losses on certain assets. 2. The hypotheses used in the actuarial calculation of employee benefits liabilities. 3. Useful lives of fixed assets and intangible assets. 4. The criteria used in the valuation of certain assets (such as derivative instruments, deferred tax assets, etc.). 5. The probability that certain liabilities and contingencies (provisions) will materialize and their valuations.
These estimates are made on the basis of the best available information about the matters being analyzed. In any event, it is possible that future events may make it necessary to modify such estimates in future periods. If necessary, such modifications would be made prospectively, such that the effects of the change would be recognized in future financial statements.
Starting the last quarter of 2017, CSAV’s board and management decided to discontinue operations of its freight forwarder and logistics services unit, operated by the Norgistics subsidiaries (hereinafter Norgistics), given the unit’s inability to sustain enough business volume to make its operations profitable and to develop it within CSAV’s business context. This decision was made in order to maintain the proper strategic focus on its main businesses and secure the greatest value possible for CSAV and its shareholders.
As of December 31, 2019, given that the Company’s plan for disposing of this business unit has been defined, has been approved by CSAV’s senior management and is currently being implemented, the Company decided to present all assets and liabilities related to the logistics services unit as “held for sale” in the Consolidated Statement of Financial Position (“Disposal groups classified as held for sale”), in accordance with IFRS 5. The Consolidated Statement of Income and the respective notes in these Consolidated Financial Statements have been expressed consistently with these modified classifications of assets and liabilities and other provisions of IFRS 5.
As explained in Note 14, on April 3, 2019, the subsidiary Norgistics Perú S.A.C. was liquidated and on August 21, 2018, Tollo Shipping Co. S.A. sold the subsidiary Norgistics (China) Ltd. [Hong Kong] to third parties. However, because it still maintains control over other subsidiaries from the same business unit, the assets and liabilities of the Norgistics business unit as well as the discontinued unit’s results and cash flows, separated into operating, investing and financing cash flows, are separately disclosed in Note 35 of this report (Discontinued Operations). This presentation provides more clarity for analyzing the performance and financial position of CSAV’s continued operations and a better comparison with financial information from prior periods.
112 Compañía Sud Americana de Vapores S.A. (C) NEW ACCOUNTING PRONOUNCEMENTS
(C.1) THERE ARE STANDARDS, AMENDMENTS AND INTERPRETATIONS THAT ARE MANDATORY FOR THE FIRST TIME FOR PERIODS BEGINNING ON OR AFTER JANUARY 1, 2019, AND HAVE BEEN APPLIED IN PREPARING THESE CONSOLIDATED FINANCIAL STATEMENTS:
NEW STANDARDS AND INTERPRETATIONS
• IFRS 16 Leases • IFRIC 23 Uncertainty over Income Tax Treatments
AMENDMENTS TO IFRS
• Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) • Prepayment Features with Negative Compensation (Amendments to IFRS 9) • Plan Amendment, Curtailment or Settlement (Amendments to IAS 19) • Annual Improvements Cycle 2015-2017 (Amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23)
(C.2) THE FOLLOWING NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS HAVE BEEN ISSUED BUT APPLICATION IS NOT YET MANDATORY:
New IFRS Mandatory Effective Date
IFRS 17: Insurance Contracts Annual periods beginning on or after January 1, 2021. Early adoption is permitted for entities that apply IFRS 9 and IFRS 15 on or before that date.
Amendments to IFRS
Sale or Contribution of Assets between an Investor and its Associate or Effective date deferred indefinitively. Joint Venture (Amendments to IFRS 10 and IAS 28).
Amendments to References to the Conceptual Framework in IFRS Annual periods beginning on or after January 1, 2020. Standards
Definition of a Business (Amendments to IFRS 3) Annual periods beginning on or after January 1, 2020. Early adoption is permitted.
Definition of Material (Amendments to IAS 1 and IAS 8) Annual periods beginning on or after January 1, 2020. Early adoption is permitted.
Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and Annual periods beginning on or after January 1, 2020. Early adoption is permitted. IFRS 7)
Management does not intend to adopt these standards early and, to date, has not estimated the potential impact of adopting these amendments early on its Consolidated Financial Statements.
2019 Annual Report 113 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 CONSOLIDATION BASIS
(A) SUBSIDIARIES
Subsidiaries include all of the entities over which CSAV has control.
Control is achieved when the Company has exposure, or rights, to variable returns from the investor’s involvement with the investee and has the ability to use its power over the investee to affect the amount of the investor’s returns. Specifically, the Company controls an investee if and only if it has all of the following elements:
(i) power over the investee (i.e. existing rights that give it the ability to direct the relevant activities of the investee);
(ii) exposure, or rights, to variable returns from its involvement with the investee;
(iii) the ability to use its power over the investee to affect the amount of the investor’s returns.
When the Company has less than the majority of the voting rights in an investee, it still has power over the investee when these voting rights are sufficient to give it the practical ability to unilaterally direct the investee’s relevant activities. The Company considers all of the facts and circumstances in evaluating whether the voting rights in an investee are sufficient to give it power, including:
(a) the size of its holding of voting rights relative to the size and dispersion of holdings of other vote holders; (b) potential voting rights held by the investor, other vote holders or other parties; (c) rights from other contractual agreements; and (d) any additional facts and circumstances that indicate that the investor has, or does not have, the current ability to unilaterally direct the relevant activities when decisions need to be made.
The Company will reevaluate whether or not it has control in an investee if the facts and circumstances indicate that there have been changes in one or more of the three elements of control mentioned above. A subsidiary will be consolidated from the date on which the investor obtains control of the investee and consolidation shall cease when control over the investee is lost.
The acquisition method is used to account for the acquisition of subsidiaries by the CSAV Group. Based on this method, the acquisition cost is the fair value of the assets delivered, equity instruments issued and liabilities incurred or assumed at the date of exchange. The excess of the acquisition cost over the fair value of the Group’s share in the net identifiable assets acquired is recognized as purchased goodwill. If the acquisition cost is lower than the fair value of the net assets of the acquired subsidiary, the identification and measurement of the acquiring company’s identifiable assets, liabilities and contingent liabilities, as well as the measurement of
114 Compañía Sud Americana de Vapores S.A. the acquisition cost, shall be reconsidered. Any remaining difference will be recognized directly in net income or loss.
Subsidiaries are consolidated using the line-by-line method for all of their assets, liabilities, income, expenses and cash flows.
Non-controlling interest in subsidiaries is included in the total equity of the CSAV Group.
Intercompany transactions, balances and unrealized gains on transactions between entities of the CSAV Group are eliminated during the consolidation process. Unrealized losses are also eliminated, unless the transaction provides evidence of an impairment of the asset transferred. When necessary in order to ensure consistency with the policies adopted by the CSAV Group, the accounting policies of its subsidiaries are modified.
(B) ASSOCIATES
Associates are defined as all entities over which the CSAV Group exercises significant influence but over which it has no control, generally with an ownership interest between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method and are initially recognized at their acquisition cost, which requires assigning a value to these assets, commonly known as Purchase Price Allocation (PPA). The CSAV Group’s investments in associates include purchased goodwill identified in the acquisition, net of any accumulated impairment loss identified in that investment.
Acquisitions of additional shares in an associate that do not change the significant influence over the investment are accounted for at acquisition cost by the CSAV Group, considering the total purchases made continuously during a given period within a year and preparing one single purchase price allocation (PPA) for those purchases.
Partial or total sales of shares in an associate are subtracted from the book value of the investment, allocating the shares sold to the oldest PPAs, and subsequently adjusting PPA amortization in proportion to the shares sold.
The CSAV Group’s share in the losses or net income subsequent to the acquisition of its associates is recognized in net income or loss, and its share in movements of equity reserves, including other comprehensive income, subsequent to the acquisition is recorded as reserves. Accumulated movements subsequent to the acquisition are recorded against the carrying amount of the investment. When the CSAV Group’s share of the losses of an associate is equal to or greater than its ownership interest in that associate, including any other uninsured receivable, the Company does not recognize additional losses, unless it has incurred obligations that exceed the invested capital.
2019 Annual Report 115 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(C) JOINT ARRANGEMENTS
Joint ventures are entities in which the CSAV Group exercises control over its activities through contractual agreements with other shareholders and that require mainly the unanimous consent of the parties sharing control.
Investments in joint ventures are accounted for using the equity method and are initially recorded at their acquisition cost, which requires assigning a value to these assets, commonly known as Purchase Price Allocation (PPA). This methodology must be applied equally for any acquisition of additional interest in a joint venture, preparing a separate PPA report as of the date of the respective transaction and a separate record of the effects on net income or loss of amortizing its fair value adjustments. The cost of investments in joint ventures includes any directly related transaction costs.
The Company’s share in the losses or net income subsequent to the acquisition of its joint ventures is recognized in net income or loss, and its share in movements of equity reserves, including other comprehensive income, subsequent to the acquisition is recorded as reserves. Accumulated movements subsequent to the acquisition are recorded against the carrying amount of the investment. When the CSAV Group’s share of the losses of a joint venture is equal to or greater than its ownership interest in that associate, including any other uninsured receivable, the Company does not recognize additional losses, unless it has incurred obligations that exceed the invested capital.
116 Compañía Sud Americana de Vapores S.A. 3.2 ENTITIES INCLUDED IN CONSOLIDATION
These Consolidated Financial Statements include the assets, liabilities, results and cash flows of CSAV and all subsidiaries, which are listed in the table below. Significant transactions and related balances between group companies have been eliminated during the consolidation process.
Ownership Interest as of December 31, Taxpayer ID Company Country Currency 2019 2018 No. Direct Indirect Total Direct Indirect Total
Foreign CSAV Germany USD 100.00% 100.00% 100.00% 100.00% Germany Container Holding GmbH
Foreign Tollo Panama USD 100.00% - 100.00% 100.00% - 100.00% Shipping Co. S.A. and Subsidiaries
Foreign Norgistics Mexico USD - 100.00% 100.00% - 100.00% 100.00% México S.A. de C.V.
Foreign Navibras Brazil USD - 100.00% 100.00% - 100.00% 100.00% Comercial Maritima e Afretamentos Ltda.
Foreign Corvina Panama USD 100.00% - 100.00% 100.00% - 100.00% Shipping Co. S.A
96.838.050-7 Compañía Chile USD 99.00% 1.00% 100.00% 99.00% 1.00% 100.00% Naviera Rio Blanco S.A.
76.028.729-6 Norgistics Chile USD 99.00% 1.00% 100.00% 99.00% 1.00% 100.00% Holding S.A. and Subsidiaries
Foreign Norgistics Peru USD - - - 23.50% 76.50% 100.00% Peru S.A.C. (1)
Foreign Norgistics China RMB 100.00% - 100.00% 100.00% - 100.00% (China) Ltd. [Shenzhen]
(1) This subsidiary was liquidated in April 2019, as described in Note 2 b) and Note 35 of this report.
2019 Annual Report 117 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
3.3 OPERATING SEGMENT REPORTING
An operating segment is defined as a component of an entity’s business for which separate financial information is available and is reviewed regularly by the Company’s senior management.
Segment information is presented according to CSAV’s main business lines, which have been identified as: (i) container shipping and (ii) other transport services.
3.4 FOREIGN CURRENCY TRANSACTIONS
(A) PRESENTATION AND FUNCTIONAL CURRENCY
The items included in the financial statements of each of the entities of the CSAV Group are valued using the currency of the primary economic environment in which the entity operates (“functional currency”). The Consolidated Financial Statements are expressed in US dollars, which is both the functional and presentation currency of the CSAV Group.
(B) TRANSACTIONS AND BALANCES
Transactions in foreign currency are converted to the Company’s functional currency using the exchange rate in force as of the date of the transaction. Losses and gains in foreign currency arising from settling these transactions and from converting monetary assets and liabilities denominated in foreign currencies using period-end exchange rates are recorded in net income or loss.
Exchange differences for non-monetary items such as equity instruments at fair value through profit and loss are presented as part of the gain or loss in fair value. Exchange differences for non-monetary items such as equity instruments at fair value through profit and loss are presented as part of the gain or loss in fair value.
(C) CONVERSION OF CSAV GROUP ENTITIES TO PRESENTATION CURRENCY
The results and the financial situation of all CSAV Group entities (none of which uses the currency of a hyperinflationary economy) that use a functional currency other than the presentation currency are converted to the presentation currency as follows:
118 Compañía Sud Americana de Vapores S.A. (i) The assets and liabilities of each statement of financial position presented are converted at the closing exchange rate as of the reporting date.
(ii) The income and expenses of each income statement account are converted at the average exchange rate, unless the average is not a reasonable approximation of the cumulative effect of the exchange rates in force on the transaction dates, in which case income and expenses are converted on the dates of the transactions.
(iii) Cash flows are translated in accordance with the provisions of point (ii) above.
(iv) All resulting translation differences are recognized as a separate component of net equity, within “translation reserve” in other equity reserves.
In consolidation, exchange differences arising from the conversion of a net investment in foreign entities or Chilean entities with a functional currency other than the functional currency of the CSAV Group, and of other instruments in foreign currency that are designated as hedges for those investments, are recorded in other comprehensive income. When an investment is sold or disposed of, these exchange differences are recognized in net income or loss as part of the loss or gain on the sale or disposal.
Adjustments to purchased goodwill and to fair value arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and converted at the year- or period-end exchange rate, as appropriate.
3.5 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are measured at acquisition cost, less accumulated depreciation and impairment losses. In addition, the acquisition cost must include financial expenses that are attributable to the acquisition, and they shall be recorded until the asset in question is operating.
After initial recognition, property, plant and equipment continues to be measured at acquisition cost, less accumulated depreciation and impairment losses.
Subsequent costs are included in the value of the asset or recognized as a separate asset, only when it is likely that its future economic benefits will flow to the Company and the cost of the component can be determined reliably. The value of the replaced component is derecognized while other repairs and maintenance are charged to net income or loss for the period in which they are incurred. When significant parts of an item of property, plant and equipment have different useful lives among themselves, these parts shall be recorded as separate components.
Depreciation is recognized in net income or loss, using the straight-line method based on the estimated useful life of each component of an item of property, plant and equipment, starting from the date on which the asset becomes available for use.
2019 Annual Report 119 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
The estimated useful lives for assets are as follows:
Buildings 40 to 100 years
Machinery and operating equipment 5 to 14 years
Leasehold facilities and improvements Term of lease
Furnishings and fixtures 3 to 10 years
Computer equipment 2 to 3 years
At each consolidated financial statement period-end, the residual value and useful life of the assets are reviewed and adjusted where necessary.
When the value of an asset is greater than its estimated recoverable amount, its value is immediately lowered to its recoverable amount.
Losses and gains on the sale of property, plant and equipment are calculated by comparing the income obtained with the carrying amount and are recorded net in the Statement of Income.
Property (land or buildings) used to earn rentals and/or for capital appreciation, rather than for use in the production of services or for administrative purposes, is presented within “investment property” (in section 3.6 below). Items of property, plant and equipment that are not used in operations or for investment are disposed of in order to recover their residual value.
Lease agreements are recorded in property, plant and equipment by recognizing a right-of-use asset for property under an operating lease. These right-of-use assets are depreciated on a straight-line basis over the life of the agreement.
3.6 INVESTMENT PROPERTY
Investment property is property (land or buildings or parts of buildings) held by the Company as owner or lessee under a finance lease to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.
Investment property is recognized as an asset only when: (i) it is probable that the future economic benefits that are associated with the property will flow to the Company; and (ii) the cost of the property can be reliably measured.
120 Compañía Sud Americana de Vapores S.A. The CSAV Group records investment property at acquisition cost, less accumulated depreciation and impairment losses. In addition, the acquisition cost must include financial expenses that are directly attributable to the acquisition, and they shall be recorded as such until the asset in question is operating.
The simple reclassification of land or buildings from property, plant and equipment to investment property will not generate any gains or losses for the Company since both items are valued at historical cost and, therefore, will be recorded at the same amount for which they were recorded originally.
Losses and gains on the sale of investment property are calculated by comparing the income obtained with the carrying amount and are recorded net in the Consolidated Statement of Income.
3.7 INTANGIBLE ASSETS
Only those intangible assets whose costs can be reasonably objectively estimated and those assets from which it is likely that economic benefits will be obtained in the future are recognized for accounting purposes. Such intangible assets shall be initially recognized at acquisition or development cost, and they shall be valued at cost less the corresponding accumulated amortization and any impairment losses incurred, for those intangible assets with a finite useful life.
For intangible assets with a finite useful life, amortization is recognized in net income or loss, using the straight-line method based on the estimated useful life, starting from the date on which the asset is available for use or another method that better represents its usage or wear. Intangible assets with an indefinite useful life and goodwill are not amortized but impairment testing is performed on an annual basis.
The classes of intangible assets held by the CSAV Group and the corresponding periods of amortization are summarized as follows:
Class Minimum Maximum
Acquired goodwill Indefinite
Development costs 2 years 4 years
Computer software 2 years 4 years
2019 Annual Report 121 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(A) SOFTWARE
Acquired software licenses are capitalized on the basis of costs incurred to acquire them and prepare them for use. These intangible assets are amortized over their estimated useful lives.
(B) PATENTS, TRADEMARKS AND OTHER RIGHTS
These assets are presented at historical cost. These rights have no defined useful life and, therefore, are not amortized. However, the indefinite useful life is subject to periodic review in order to determine whether the indefinite useful life is still applicable.
3.8 GOODWILL
Goodwill represents the difference between the acquisition cost and the value of the CSAV Group’s share of the net acquired assets and liabilities of the subsidiary, associate or joint venture, measured as of the acquisition date. Acquired goodwill is presented separately in the Statement of Financial Position and is tested for impairment on an annual basis and valued at cost less accumulated impairment losses. Goodwill related to acquisitions of associates and joint ventures is included in the investment value and tested for impairment as a whole. Gains and losses related to the sale of an investment include in the cost the carrying amount of acquired goodwill related to the investment that was sold.
Purchased goodwill is allocated to cash-generating units for impairment testing purposes. The allocation is made for those cash- generating units that are expected to benefit from the business combination or acquisition in which such acquired goodwill was generated.
Negative goodwill arising from the acquisition of an investment or business combination is recorded in accordance with Note 3.1 a).
3.9 BORROWING COSTS
Borrowing costs incurred for the construction of any qualified asset (an asset that necessarily takes a substantial period of time to get ready for use) are capitalized over the period of time needed to complete and prepare the asset for its intended use. Other borrowing costs are recorded in net income or loss as finance costs.
122 Compañía Sud Americana de Vapores S.A. 3.10 IMPAIRMENT OF NON-FINANCIAL ASSETS
Assets that have an indefinite useful life (e.g. goodwill and intangible assets with indefinite useful lives) are not amortized and are tested for impairment on an annual basis.
Assets that are not amortized are tested for impairment whenever an event or change in circumstances indicates that the carrying amount may not be recoverable. If this is the case, an impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the greater of: (i) the fair value of an asset or cash generating unit (CGU) less costs to sell; and (ii) the value in use. To determine its value in use, future cash flows estimated for the asset or CGU are discounted to their present value using a before-tax discount rate that reflects the current market valuations over the cost of money and the specific risks that apply to the asset or business.
To conduct impairment testing, assets or CGUs are grouped by operating segment, as indicated in Note 6 to these Consolidated Financial Statements.
Non-financial assets other than purchased goodwill for which an impairment loss has been recorded are reviewed at each year-end in case the loss has been reversed, in which case the reversal may never be greater than the original impairment amount.
Impairment of purchased goodwill is not reversed.
3.11 FINANCIAL ASSETS
(A) INITIAL RECOGNITION AND MEASUREMENT
Upon initial recognition, a financial asset is classified as measured at: amortized cost, fair value through other comprehensive income or fair value through profit and loss.
Financial assets are not reclassified after initial recognition, unless the Company changes its business model to one of managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in business model.
2019 Annual Report 123 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
A financial asset must be measured at amortized cost if it meets the following two conditions and is not measured at fair value through profit and loss:
• the financial asset is maintained within a business model whose objective is to hold the financial assets to obtain contractual cash flows; and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal outstanding.
An investment in debt must be measured at fair value through other comprehensive income if it meets the following two conditions and is not measured at fair value through profit or loss:
• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal outstanding.
The Company evaluated the objective of the business model in which it holds financial assets at portfolio level since this is the level that best reflects how the business is managed and the information provided to management. The information considered includes:
• The mentioned policies and objectives for the portfolio and the operation of these policies in practice. These include whether the management strategy focuses on collecting contractual interest income, maintaining a particular interest yield profile or coordinating the duration of financial assets with the duration of the liabilities that those assets are financing or the expected cash outflows or realizing cash flows through sale of the assets; • how portfolio performance is evaluated and how it is reported to the Company’s key management personnel; • the risks that affect the performance of the business model (and the financial assets held in the business model) and, in particular, how those risks are managed; • how business managers are compensated (e.g. whether compensation is based on the fair value of the managed assets or the contractual cash flows obtained); and • the frequency, value and timing of sales in prior periods, the reasons for these sales and expectations regarding future sales.
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, based on the Company’s ongoing recognition of the assets.
124 Compañía Sud Americana de Vapores S.A. Financial assets that are maintained for trading or are managed and whose performance is evaluated on a fair value basis are measured at fair value through profit and loss.
EVALUATION OF WHETHER CONTRACTUAL CASH FLOWS ARE SOLELY PAYMENTS OF PRINCIPAL AND INTEREST
For the purposes of this evaluation, ‘principal’ is defined as the fair value of the financial asset upon initial recognition. ‘Interest’ is defined as the consideration for the time value of money for the credit risk associated with the outstanding principal amount during a given period of time and for other risks and basic borrowing costs (e.g. liquidity risk and administrative costs), as well as a profit margin.
Upon evaluating whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes evaluating whether a financial asset contains a contractual condition that could change the timing or amount of the contractual cash flows so that it would not meet this condition. To perform this evaluation, the Company considers:
• contingent facts that would change the amount or timing of the cash flows; • terms that could adjust the contractual coupon rate, including variable-rate features; • prepayment and extension features; and • terms that limit the Company’s right to the cash flows from specific assets (e.g. without recourse features).
A prepayment feature is consistent with the criterion of solely payment of principal and interest if the amount of the prepayment substantially represents the amounts of unpaid principal and interest over the principal amount, which can include reasonable additional compensation for early termination of the contract. In addition, in the case of a financial asset acquired at a discount or a premium over its contractual nominal amount, a feature that allows or requires prepayment of an amount that substantially represents the contractual nominal amount plus the accrued (but unpaid) contractual interest (that can also include reasonable additional compensation for early termination) is treated as consistent with this criterion if the fair value of the prepayment feature is insignificant upon initial recognition.
These assets are measured subsequently at amortized cost using the effective interest method. Amortized cost is net of impairment losses. Interest income, gains from exchange differences and impairment are recognized in net income or loss. Any gain or loss upon derecognition is recognized in net income or loss.
2019 Annual Report 125 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(B) DERECOGNITION OF FINANCIAL INSTRUMENTS
In general, financial assets are derecognized when they mature or when contractual rights to receive cash flows have been transferred or when the entity has transferred substantially all risks and rewards of ownership. Financial liabilities are derecognized when they have been extinguished (i.e. when the obligation specified in the contract has been paid, canceled or has expired or when it is legally released from liability by the creditor.
(C) SUBSEQUENT RECOGNITION AND MEASUREMENT
Financial instruments are classified as stated in Note 3.11.a) at amortized cost, fair value through other comprehensive income or fair value through profit and loss.
(i) Amortized Cost Financial instruments at amortized cost are accounted for at their amortized cost according to the effective interest method. Amortized cost is net of impairment losses. Finance income and costs, gains and losses from exchange differences and impairment are recognized in net income or loss. Any gain or loss upon derecognition is recognized in net income or loss for the year.
(ii) At Fair Value Through Other Comprehensive Income Financial instruments at fair value through other comprehensive income are subsequently measured at fair value. Interest income is calculated using the effective interest method and recognized in net income or loss. Other net gains or losses are recognized in equity.
(iii) At Fair Value through Profit and Loss Financial instruments at fair value through profit and loss are subsequently measured at fair value. Net gains or losses, including any interest or dividend income, are recognized in net income or loss for the year.
(D) FINANCIAL ASSET IMPAIRMENT
The Company recognizes corrections in value for expected credit losses for financial assets measured at amortized cost. The Company measures corrections in value for an amount equal to the asset’s lifetime expected credit losses.
Corrections in value for trade receivables are always measured for an amount equal to the lifetime expected credit losses.
126 Compañía Sud Americana de Vapores S.A. Upon determining whether the credit risk of a financial asset has increased significantly since initial recognition by estimating expected credit losses, the Company considers the reasonable and supportable information that is relevant and is available without undue costs or effort. This includes quantitative and qualitative information and analysis, based on the Company’s historical experience and an informed credit evaluation including references to the future.
Lifetime expected credit losses are the credit losses that result from all possible default events over the life of the financial instrument.
A financial asset that is not recorded at fair value through profit and loss is evaluated at each period-end in order to determine whether there is objective evidence of impairment. A financial asset is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset, and that this loss event has had a negative effect on the asset’s future cash flows that can be reliably estimated.
Objective evidence that financial assets are impaired may include, among others, delay or default by a debtor, restructuring of an amount owed to the Company in terms that that Company would not consider in other circumstances, indications that a debtor or issuer will declare bankruptcy, or the disappearance of an active market for an instrument.
In addition, for an investment in an equity instrument, a significant or prolonged decrease in the fair value of the asset, below its cost, represents objective evidence of impairment.
For receivables, the Company uses the simplified approach permitted by IFRS 9, which requires it to recognize expected losses over the life of the instrument since initial recognition of the receivable.
All individually significant receivables are tested for specific impairment. Receivables that are not individually significant are tested for collective impairment by grouping items with similar risk characteristics.
In evaluating collective impairment, the Company uses historical trends of probability of noncompliance, the timing of recoveries and the amount of the loss incurred, all adjusted according to management’s judgment as to whether under the prevailing economic and credit conditions it is likely that the actual losses will be greater or lesser than the losses indicated by historical trends.
2019 Annual Report 127 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
3.12 TRADE AND OTHER RECEIVABLES
Trade receivables are initially recognized at fair value and subsequently at amortized cost less any provision for impairment, calculated using the expected credit loss model as required by IFRS 9.
In the Consolidated Statement of Income the subsequent recovery of previously provisioned amounts is credited to cost of sales.
3.13 CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash held internally and in banks; time deposits in credit entities; other highly liquid, short-term investments with an original term of three months or less; and bank overdrafts. In the Statement of Financial Position, bank overdrafts are classified as external resources in current liabilities.
3.14 TRADE AND OTHER PAYABLES
Accounts payable to suppliers are initially recognized at fair value and subsequently, if applicable, at amortized cost using the effective interest method.
3.15 INTEREST-BEARING LOANS AND OTHER FINANCIAL LIABILITIES
Loans, bonds payable and other financial liabilities of a similar nature are initially recognized at fair value, net of the costs incurred in the transaction. Subsequently, they are valued at amortized cost and any difference between the funds obtained (net of costs to obtain them) and repayment value are recognized in the Statement of Income over the life of the debt using the effective interest rate method.
3.16 ISSUED CAPITAL
The Company’s subscribed and paid shares are classified within equity under issued capital.
Incremental costs directly attributable to the issuance of new shares are presented in net equity as a deduction, net of taxes, from the income obtained in the placement. Until the Company’s shareholders approve the deduction of these costs against issued capital, they are recorded within other equity reserves.
128 Compañía Sud Americana de Vapores S.A. 3.17 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE ACTIVITIES
Derivative financial instruments used to hedge risk exposure in foreign currency purchases, fuel purchases and interest rates are initially recognized at fair value.
After initial recognition, derivative financial instruments are periodically measured at fair value, and any changes are recorded as described below:
(i) Accounting Hedges The CSAV Group documents the relationship between hedge instruments and the hedged items at the beginning of the transaction, as well as its risk management objectives and strategy for carrying out diverse hedge transactions. The Company also documents its evaluation, both initially and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective at offsetting changes in fair value or in the cash flows from the hedged items.
Derivative financial instruments that satisfy hedge accounting criteria are initially recognized at fair value plus (less) the transaction costs that are directly attributable to contracting or issuing the instrument, as appropriate.
Changes in the fair value of these instruments shall be recognized directly in equity, to the extent that the hedge is effective. When it is not effective, changes in fair value shall be recognized in net income or loss.
If the instrument no longer satisfies hedge accounting criteria, the hedge shall be discontinued prospectively. Any accumulated gains or losses that were previously recognized in equity will remain until the forecasted transactions occur.
(ii) Economic Hedges Derivative financial instruments that do not satisfy hedge accounting criteria are classified and valued as financial assets or liabilities at fair value through profit and loss.
The fair values of derivative instruments used for hedging purposes are shown in Note 12. Movements in the hedge reserve within equity are shown in Note 28. The total fair value of the hedge derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is greater than 12 months and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.
2019 Annual Report 129 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
3.18 INVENTORIES
Inventories are valued at cost or net realizable value, whichever is lower. The cost is determined by the “first-in-first-out,” or FIFO, method and includes the acquisition cost and other costs incurred in bringing it to its place and conditions of use.
The net realizable value is the estimated sales value in the normal course of business, less estimated selling costs.
3.19 CURRENT AND DEFERRED INCOME TAXES
Income taxes for the period include current income taxes and deferred income taxes. Taxes are recognized directly in net income or loss except for certain items recognized directly in equity.
Current income taxes are calculated based on each country’s tax laws in force as of the reporting date.
Deferred taxes are calculated using the Statement of Financial Position based on temporary differences that arise between the tax basis of assets and liabilities and their carrying amount in the financial statements. However, if the deferred taxes arise from the initial recognition of a liability or an asset in a transaction other than a business combination, which at the time of the transaction neither affected the accounting result nor the tax gain or loss, it is not accounted for. Deferred taxes are determined using tax rates (and laws) that have been enacted or approved as of the date of the Statement of Financial Position and that are expected to be applied when the corresponding deferred tax asset or liability is realized.
Deferred tax assets are recognized to the extent that it is likely that future tax benefits are available with which to effectively offset these differences.
Deferred taxes are measured using the tax rate applicable to CSAV under this tax system, or 27%.
3.20 EMPLOYEE BENEFITS
(A) CONTRACT TERMINATION INDEMNITY
Commitments undertaken in a formal detailed plan, either in order to terminate the contract of an employee before normal retirement age or to provide termination benefits, are recognized directly in net income or loss.
130 Compañía Sud Americana de Vapores S.A. (B) SHORT-TERM BENEFITS AND INCENTIVES
The CSAV Group recognizes this obligation on an undiscounted basis when it is contractually bound to do so or when past practice has created an implicit obligation. It is accounted for in net income or loss on an accrual basis.
3.21 PROVISIONS
The CSAV Group recognizes provisions when the following requirements are satisfied:
(a) there is a current obligation, whether legal or implicit, as a result of past events;
(b) it is likely that an outflow of resources will be needed to settle the obligation; and
(c) the amount can be reliably estimated.
In the case of a service contract that is considered onerous, a provision will be recognized and charged to net income or loss for the period, for the lesser of the cost of settling the contract and the net cost of continuing it.
Provisions for restructuring purposes are recognized to the extent that the CSAV Group has approved a formal detailed plan for restructuring an operation, and that such restructuring has been internally reported or has already begun.
Provisions are not recorded for future operating losses except for the onerous contracts mentioned above.
These provisions are valued at the present value of the disbursements that are expected to be necessary to settle the obligation using, if applicable, a discount rate that reflects the current market assessments of the time value of money and the specific risks of the obligation.
3.22 OTHER NON-FINANCIAL LIABILITIES
This item includes liabilities that are not of a financial nature and do not qualify as any other specific type of liability.
For the Company, the most relevant liabilities recorded within this account are those related to income from voyages in transit (i.e. those that have not yet reached their destination) and, therefore, the performance obligation with the customer has not been satisfied as of the reporting date.
2019 Annual Report 131 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
3.23 OPERATING INCOME
The Company has analyzed and considered all relevant facts and circumstances when applying each step of the model in IFRS 15 to customer contracts, identifying:
i) a sole type of contract, ii) a single performance obligation, iii) a price that depends on whether the customer has a contract or is a spot customer, allocated to this single performance obligation, iv) a performance obligation that is satisfied when the shipping service route is completed.
This occurs, for example, when a journey completes its full itinerary. At that time, customers receive and simultaneously consume the benefits of the service that the Company is providing. In the case of sub-chartered vessels or other operating income, the performance obligation is related to the effective availability of the chartered asset or the specific service provided.
3.24 DISCONTINUED OPERATIONS
The preparation criteria for discontinued operations is described in Note 2 b).
3.25 FINANCE INCOME AND COSTS
Finance income is accounted for based on its effective rate. Finance costs are recognized in net income or loss when accrued, except for costs incurred to finance the construction or development of qualified assets that are capitalized.
Finance costs are capitalized starting from the date on which knowledge about the asset to be constructed is obtained. The amount of the capitalized finance costs (before taxes) for the period is determined by applying the effective interest rate of the loans in force during the period in which financial expenses were capitalized to the qualified assets.
3.26 LEASES
Lease agreements are recognized in property, plant and equipment by recognizing a right-of-use asset for property under an operating lease and a liability equivalent to the present value of payments associated with the agreement. An agreement is or contains a lease if it transmits the right to control the use of an identified asset for a period of time in exchange for a consideration. In terms of the effects on net income, each month amortization of the right-of-use asset will be recognized in PPE on a straight-line basis over the life of the agreement, along with the corresponding installment of the finance cost to update the lease liability. In the event of amendments
132 Compañía Sud Americana de Vapores S.A. to the lease agreement, such as the lease value, term, unit of indexation, associated interest rate, etc., the lessee will recognize the amount of the new measurement of the lease liability as an adjustment to the right-of-use asset.
The Company may choose not to apply the requirements of IFRS 16 for short-term leases and leases in which the underlying asset is of low value. However, CSAV will adopt the standard for both short and long-term lease agreements.
3.27 DETERMINATION OF FAIR VALUE
Some of the CSAV Group’s accounting policies and disclosures require that the fair value of certain financial assets be determined as follows:
(A) FINANCIAL ASSETS
The fair value of financial assets at fair value through profit and loss and available-for-sale financial assets is determined at market value.
(B) DERIVATIVES
The fair value of derivative contracts is based on market quotes.
3.28 EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are calculated as the ratio between net income (loss) for the period divided by the daily weighted average number of common shares outstanding during the period.
3.29 DIVIDEND DISTRIBUTIONS
Until there is a positive balance of distributable net income as of period-end (i.e. the initial balance plus the results for the period), the Company will not distribute dividends to its shareholders (Art. 78 Law No. 18,046). This calculation is shown in Note 28 g) to these Consolidated Financial Statements.
The distribution of dividends to the Company’s shareholders is recognized as a liability in CSAV’s annual consolidated accounts in the period in which they become payable. The Company’s policy is to distribute 30% of distributable net income.
2019 Annual Report 133 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
3.30 ENVIRONMENT
Disbursements related to environmental protection are recorded in income when incurred.
NOTE 4 CHANGES IN ACCOUNTING POLICIES AND ESTIMATES
The Interim Consolidated Financial Statements as of December 31, 2019, present some changes in policies and accounting estimates as required because of mandatory adoption of IFRS 16 starting January 1, 2019. These changes do not involve significant changes in financial reporting from prior years that can affect comparability with the previous period.
IFRS 16 LEASES
This standard requires lease agreements currently classified as operating to be accounted for similarly to finance leases. In general, this means recognizing a right-of-use asset for property under an operating lease and a liability equivalent to the present value of payments associated with the agreement.
In terms of the effects on net income, monthly lease payments will be replaced by amortization of the right-of-use asset plus recognition of a finance cost. In the event of amendments to the lease agreement, such as the lease value, term, unit of indexation, associated interest rate, etc., the lessee will recognize the amount of the new measurement of the lease liability as an adjustment to the right-of-use asset.
The Company has determined that the lease commitments that must be analyzed within the scope of IFRS 16 are mainly those for vessel and slot charters. The impact of the initial adjustment as of January 1, 2019, on the Statement of Financial Position is:
As of January 1, 2019 ThUS$
Increase in right-of-use assets 30,499 *
Increase in lease liabilities 30,499 * * The present value of the payments related to the lease agreements.
134 Compañía Sud Americana de Vapores S.A. NOTE 5 FINANCIAL RISK MANAGEMENT
The container business is CSAV’s main asset, through its investment in HLAG. Although CSAV is not directly exposed to the financial risks of the container industry as an operator, it is indirectly exposed because these risks directly affect the value of CSAV’s investment in that joint venture and the associated dividend flow from HLAG and its capital requirements, which may result in CSAV having to subscribe to capital increases in that joint venture, or seeing its stake diluted and the economic value of its investment and future dividends reduced if it chooses not to subscribe.
CSAV’s investment in HLAG represents 86.14% of its total consolidated assets, as of December 31, 2019. HLAG is a global shipping company headquartered in Germany that transports container cargo on all main global routes. It is a public company (Aktiengesellschaft) and is listed on the Frankfurt and Hamburg stock exchanges. Although CSAV jointly controls HLAG together with two other shareholders, this German company has an independent management team that controls and manages its risks autonomously and in accordance with the standards of a publicly-listed company subject to current regulation in Germany and, therefore, to applicable regulation in the European Union.
The businesses that CSAV operates directly are mainly vehicle transport services, which are exposed to various financial risks that include: (a) Business Risk, (b) Credit Risk, (c) Liquidity Risk and (d) Market Risk.
The Company seeks to minimize the potential effects of these risks by establishing internal financial risk management policies and using hedges and financial derivatives.
(A) BUSINESS RISK
The main business risks for CSAV are those related to the balance of supply and demand for maritime transport, as well as risks associated with its main geographical markets and fuel prices.
The container transport business is exclusively operated by HLAG, and its management autonomously manages the financial risks associated with this business, using the instruments and tools offered by the industry and the financial market in accordance with the standards of a publicly-listed company in Germany. Additional information on these risks and how they are managed by HLAG can be found in its Annual Report 2019, which includes its audited Consolidated Financial Statements prepared under IFRS, which are published on its website at the following link (in English): https://www.hapag-lloyd.com/en/ir/publications/financial-report.html.
2019 Annual Report 135 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(I) SUPPLY-DEMAND EQUILIBRIUM
The demand for maritime transport is highly correlated with growth of global GDP and trade. On the other hand, container shipping supply is a function of the global fleet of vessels, which fluctuates based on the delivery of new vessels and the scrapping of vessels that are obsolete or no longer profitable to operate. Both the container transport business, operated and managed by HLAG, and the vehicle transport business are directly affected by changes in these variables in their respective industry.
The imbalance between supply and demand can affect shipping operators to a greater or lesser extent depending on their operating fleet (vessel age, fuel consumption and versatility, among other characteristics), the proportion of their fleet that is owned and the proportion chartered (operational leverage) in comparison to the industry. Significant exposure to chartered vessels can negatively impact the results and the financial position of operators when charter rates are not correlated with freight rates before fuel costs (ex-bunker rates), either because of market imbalances or the duration of vessel charter agreements at fixed rates. The duration and age of charter agreements can limit shipping companies’ capacity to adjust their operated fleets and modify their vessel sailing speed in response to abrupt drops in shipping demand and streamlining and cost-cutting initiatives.
Vessel supply and demand imbalances for the maritime transport services directly operated by CSAV (vehicle transport) can cause volatility in vehicle transport charter and freight rates for roll-on/roll-off vessels.
(II) GEOGRAPHICAL MARKETS
The HLAG joint venture participates in container shipping across all major global routes, and it distributes its operations across diverse geographical markets, providing liner services in more than 125 countries. As a result of its geographic diversification, the Company is not particularly exposed to any given geographical market and can thus offset possible market contingencies on certain routes. However, it is still exposed to global variations. Even with a global service network, HLAG’s relative exposure is above the industry average on Transatlantic, Latin American and Middle East routes and below average on Transpacific and Intra-Asia routes. As a result of the May 2017 merger of HLAG and UASC, HLAG incorporated UASC’s service network and its important cargo volumes along Asia- Europe and Middle East routes and, therefore, its relative exposure to the main global routes became more balanced.
The vehicle transport services directly operated by CSAV expose the Company to changes within South American markets, particularly the vehicle and wheeled machinery markets on the west coast of the continent (mainly Chile and Peru), which are directly linked to new vehicle sales in these markets. Beginning in 2016, there has been a rise in sales of light vehicles in Chile—CSAV’s most important market. This trend held until 2018 when vehicle sales peaked, recovering volumes last seen in 2013. However, in 2019 there was a fall in vehicle sales with respect to the prior period, which also involved a reduction in import volumes to Chile.
136 Compañía Sud Americana de Vapores S.A. (III) FUEL PRICES
An important component of the transport industry’s cost structure is the cost of energy, or fuel, which is usually called “bunker” within the maritime shipping industry. In the vessels it operates, the Company primarily uses the fuels IFO 380, IFO 180 and MGO/LS.
In January 2020, new regulations from the International Maritime Organization (IMO 2020) took effect, reducing permitted vessel sulfide emissions from 3.5% to 0.5% in order to improve air quality and protect the environment. In emission control areas (ECA), the current standard of 0.1% sulfur content will be maintained.
Most of CSAV’s maritime freight sales are agreed with contracts and generally a percentage of those rates are subject to price adjustments, based on changes in the cost of fuel, known as a Bunker Adjustment Factor (“BAF”). Likewise, beginning January 1, 2019, HLAG will gradually implement a Marine Fuel Recovery (MFR) mechanism to recover the incremental costs from using more refined fuel, to be calculated per TEU.
The Company contracts fuel price hedges on volumes that are not covered by sales and contracts subject to fuel price adjustment clauses, or which are not at a fixed price, or for that portion of sales with this clause where the coverage is limited, in order to reduce the impact of potential upward volatility in fuel prices.
For example, for transport services directly operated by the Company during 2019, an increase in fuel prices of US$10 per metric ton of fuel would have had a negative impact of around ThUS$393 on the Company’s results. This effect is significantly reduced by using price adjustment clauses and/or fuel derivatives.
2019 Annual Report 137 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(B) CREDIT RISK
Credit risk is derived from the CSAV Group’s exposure to (i) potential losses resulting mainly from non-fulfillment of obligations by customers, third-party agencies and carriers with which the Company has signed vessel charter and/or slot sale agreements, (ii) counterparty risk in the case of financial assets maintained with banks and (iii) counterparty risk in the case of financial hedges with banks or other institutions.
(I) ACCOUNTS RECEIVABLE
The Company has a strict credit policy for managing its portfolio of accounts receivable. Most of the Company’s customers are direct customers. This policy is based on lines of credit and payment terms granted on the basis of an individual analysis of the solvency, payment capacity, and general references of each customer, the customer’s shareholders, industry and market where it does business, as well as its payment history with the Company.
These lines of credit are reviewed at least yearly, and special care is taken so that the conditions offered, with respect to both amounts and terms, are appropriate given market conditions and expected volumes. Payment behavior and the percentage of use of these lines are regularly monitored and updated to reflect changes in volume and sales estimates.
Agencies that represent CSAV are constantly monitored to ensure that the administrative, commercial, operational and collection processes, and their relationship with customers and suppliers complies with agreed contract terms.
Furthermore, there is a rigorous policy to record an allowance for doubtful accounts for any debt carrying a material credit risk or based on historical portfolio delinquency, even when the debt may be recoverable.
Regarding vessel and slot charters to third parties, the Company supports its agreements using Charter Party and Slot Charter Agreements drafted using industry standard models that appropriately cover its interests. CSAV charters vessels to third parties and slots to other shipping companies, always taking into consideration the counterparty’s creditworthiness. However, CSAV often leases slots from the same shipping companies to which it leases its own slots on other voyages and services, which significantly reduces the risk of default.
138 Compañía Sud Americana de Vapores S.A. The Company’s maximum credit risk exposure from trade and other receivables corresponds to the total of these accounts net of impairment, as detailed below:
As of December 31, 2019 As of December 31, 2018 Note ThUS$ ThUS$
Trade receivables 9 12,244 15,285
Impairment of trade receivables 9 (169) (214)
Trade receivables, net 12,075 15,071
9 4,159 2,583
Other receivables, net 9 4,159 2,583
Total receivables, net 16,234 17,654
The Company records impairment provisions for trade receivables using the expected credit loss model, which also considers certain special conditions as defined in the following chart:
Factor
Legal collections, checks issued with insufficient funds and other similar concepts 100%
Customers and agencies with a high risk of financial impairment 100%
Case-by-case analysis of particular past due debtors 100%
During the period, the provision for impairment of accounts receivable has reported the following movements:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Opening balance 214 280
Increase (decrease) in impairment for the year (45) (66)
Impairment of accounts receivable, closing balance 169 214 (note 9)
2019 Annual Report 139 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(II) FINANCIAL ASSETS
The Company has a policy for managing its financial assets, which includes time deposits and repurchase agreements. It has its current accounts and investments in financial institutions with risk classification of “investment grade.”
The carrying amount of these financial assets represents the maximum exposure to counterparty risk, as detailed as follows:
As of December 31, 2019 As of December 31, 2018 Note ThUS$ ThUS$
Banks 7 8,590 4,248
Time deposits 7 45,015 20,077
Total 53,605 24,325
(III) HEDGING POSITIONS
As part of its risk management policy, the Company can take out interest rate, exchange rate and oil price hedges. These hedge positions are contracted through financial institutions that are highly regarded in the industry and investment grade risk ratings. The Company’s open hedge positions as of December 31, 2019 and 2018, are as follows.
As of December 31, 2019 As of December 31, 2018 Note ThUS$ ThUS$
Goldman Sachs Fuel Oil Swaps 12 - (756)
Total - (756)
(C) LIQUIDITY RISK
Liquidity risk refers to the Company’s exposure to business or market factors that may affect its ability to generate income and cash flows, including the effect of contingencies and regulatory requirements associated with its business.
CSAV is not directly exposed to the container business, as explained in this note, but indirectly as a main shareholder of HLAG. This limits the Company’s liquidity risk in that business to the expected flow of dividends or any additional capital required by this joint venture. It is important to mention that CSAV has specific long-term borrowing to finance its investment in HLAG.
140 Compañía Sud Americana de Vapores S.A. CSAV has sufficient liquidity to cover its direct transport services. However, considering the risks described above, if necessary the Company has an available line of credit with HSBC Chile for up to US$10,000,000 expiring in July 2020. As of December 31, 2019, this credit line has not been drawn down.
As of December 31, 2019, the contractual maturities of its financial liabilities, including estimated interest payments, are detailed below:
Carrying Contractual 6 Months or More than 5 6 to 12 Months 1 – 2 Years 2 – 5 Years As of December 31, 2019 Note Amount Cash Flows Less Years ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
NON-DERIVATIVE
FINANCIAL LIABILITIES
Bonds payable 22 (149,719) (184,212) (3,924) (3,924) (56,564) (40,840) (78,960)
Unsecured bank 22 (70,017) (74,637) (5,805) (41,734) (11,217) (15,881) - instruments
Trade and other 10 and (41,433) (41,433) (41,433) - - - - payables and payables 23 to related parties
Other financial liabilitie 22 (7,871) (7,871) (7,871) - - - -
DERIVATIVE FINANCIAL - LIABILITIES
Hedge liabilities 12 ------
Total (269,040) (308,153) (59,033) (45,658) (67,781) (56,721) (78,960)
Note: The cash flows included in the maturity analysis are not expected to occur significantly before or after the maturity date.
2019 Annual Report 141 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
As of December 31, 2018, the contractual maturities of its financial liabilities, including estimated interest payments, are detailed below:
Carrying Contractual 6 Months or More than 5 6 to 12 Months 1 – 2 Years 2 – 5 Years As of December 31, 2018 Note Amount Cash Flows Less Years ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
NON-DERIVATIVE
FINANCIAL LIABILITIES
Bonds payable 22 (49,586) (56,418) (1,283) (1,284) (2,568) (51,283) -
Unsecured bank 22 (45,371) (50,974) (6,160) (6,017) (11,719) (27,078) - instruments
Trade and other 10 and (10,330) (10,330) (10,330) - - - - payables and payables 23 to related parties
DERIVATIVE FINANCIAL - LIABILITIES
Hedging liabilities 12 (756) ------
Total (106,043) (117,722) (17,773) (7,301) (14,287) (78,361) -
Note: The cash flows included in the maturity analysis are not expected to occur significantly before or after the maturity date.
(D) MARKET RISK
Market risk, as analyzed in this section, is the risk that the value of the Company’s assets or liabilities continuously and permanently fluctuates over time as the result of a change in key economic variables such as: (i) interest rates, (ii) exchange rates, and (iii) fuel prices.
When necessary, the Company can use accounting hedges to mitigate changes in these variables. Variations in the market price of these hedges, in accordance with current policy, are recorded in other comprehensive income. Details of the derivatives held by the Company, including their fair value, are presented in Note 12 to these Consolidated Financial Statements.
142 Compañía Sud Americana de Vapores S.A. (I) INTEREST RATE FLUCTUATIONS
Interest rate fluctuations impact the Company’s floating rate obligations.
As of December 31, 2019 and 2018, the Company’s net asset and liability position in interest-bearing financial instruments with fixed or variable rates, is detailed as follows:
As of December 31, 2019 As of December 31, 2018 Note ThUS$ ThUS$
FINANCIAL ASSETS AT FIXED RATES:
Time deposits 7 45,015 20,077
Other financial assets 8 - -
Total financial assets at fixed rates 45,015 20,077
FINANCIAL ASSETS AT VARIABLE RATES:
Cash on hand and bank balances 5,533 -
Total financial assets at variable rates 5,533 -
Total financial assets 50,548 20,077
FINANCIAL LIABILITIES AT FIXED RATES:
Bonds payable 22 (149,719) (49,586)
Total financial liabilities at fixed rates (149,719) (49,586)
FINANCIAL LIABILITIES AT VARIABLE RATES:
Bank loans 22 (70,017) (45,371)
Loans from related parties 10 (30,194) -
Total financial liabilities at variable rates (100,211) (45,371)
Total financial liabilities (249,930) (94,957)
Net fixed-rate position (104,704) (29,509)
Net variable-rate position (94,678) (45,371)
2019 Annual Report 143 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
The Company does not hedge interest rates on loans with variable interest rates based on Libor.
The potential effect of interest rate fluctuations on variable-rate financial instruments (assets and liabilities) held by CSAV as of December 31, 2019, that are not hedged is shown in the following table. The variation considers: (i) an increase of 1% in the 6-month Libor rate, which is used for variable-rate financial liabilities, and (ii) an increase of 1% in the Libor rate, which is primarily used to invest cash surpluses. The combined effect on the Company’s results for each period would be the following:
For the year ended December 31,
2019 2018 ThUS$ ThUS$
Effect on net income or loss of increase of 100 basis points in 180-day LIBOR and (296) (65) overnight LIBOR
(II) EXCHANGE RATE FLUCTUATIONS
The Company’s functional currency is the US dollar, which is the currency in which most of its operating income and expenses are denominated as well as the currency used by most of the global shipping industry and the functional currency of HLAG. However, the Company also has income and costs in other currencies, such as Chilean pesos, euros, Brazilian reals, Chinese yuan and others.
Most of CSAV’s assets and liabilities are expressed in US dollars. However, the Company has certain assets and liabilities in other currencies, which are detailed in Note 33 to these Consolidated Financial Statements.
The Company does not have any foreign currency hedges as of December 31, 2019, and manages the risk of exchange rate variations by periodically converting any balances in local currency that exceed payment requirements in that currency into US dollars.
The following table shows the maximum exposure to fluctuations in foreign currency of the Company’s non-U.S. dollar-denominated financial assets and liabilities as of December 31, 2019 and 2018:
144 Compañía Sud Americana de Vapores S.A. Euro Real Chilean Peso/UF Yuan Other Total As of December 31, 2019 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cash and cash equivalents 126 1 162 896 91 1,276
Trade and other receivables 19 155 202 - 11 387 (current and non-current)
Receivables from related parties - - 74 - - 74 (current and non-current)
Tax assets - - 356 - - 356
Trade payables and tax liabilities (384) (163) (2,838) - (65) (3,450) (current and non-current)
Payables to related parties - - (78) - - (78) (current and non-current)
Net exposure (239) (7) (2,122) 896 37 (1,435)
Euro Real Chilean Peso/UF Yuan Other Total As of December 31, 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cash and cash equivalents 92 1 65 993 27 1,178
Trade and other receivables 146 30 228 - 210 614 (current and non-current)
Receivables from related parties - - 67 - - 67 (current and non-current)
Tax assets - - 261 - - 261
Trade payables and tax liabilities (561) (31) (1,288) - (120) (2,000) (current and non-current)
Payables to related parties - - (84) - - (84) (current and non-current)
Net exposure (323) - (751) 993 117 36
The potential effect of a 10% depreciation in the US dollar with respect to other important currencies to which the Company is exposed as of December 31, 2019, would produce an estimated gain of ThUS$144 in the Company’s results (loss of ThUS$4 as of December 31, 2018), keeping all other variables constant.
2019 Annual Report 145 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 6 SEGMENT REPORTING
The Company’s operating segments have been determined in accordance with IFRS 8, based on the main business lines developed by the CSAV Group. The performance of these businesses is reviewed routinely by the Company’s senior management using regularly available information in order to: (i) measure each business’s performance; (ii) evaluate its risks; and (iii) allocate the resources that each business requires.
In determining the operating segments to report, certain segments have been grouped together because they share similar economic characteristics, services and processes, as well as a common regulatory environment, as stipulated in IFRS 8. The information routinely examined by CSAV’s senior management consists of the results and management information for each of the operating segments, whether operated directly by CSAV or its domestic or foreign subsidiaries, associates and joint ventures.
Although the Company’s management and accounting reports may have different classifications and viewpoints, they are both determined using the policies described in Note 3 to these Consolidated Financial Statements. As a result, there are no differences in the totals in measurements of results, assets and liabilities for each segment and the accounting criteria applied in preparing the Consolidated Financial Statements.
In accordance with the preceding paragraphs, the CSAV Group has identified the following two operating segments as of December 31, 2019:
(i) Container Shipping: These are the container shipping services operated by HLAG, represented by the investment in that joint venture, plus certain assets and liabilities related to the container shipping business that are controlled by CSAV (deferred tax assets, financial liabilities to finance the investment and others).
(ii) Other Transport Services: These are the vehicle transport services operated directly by CSAV and its subsidiaries. The freight forwarder and logistics services operated by Norgistics were part of this segment until December 2017, when they were discontinued. As a result, from that point on their results are presented as discontinued operations (see Note 35 to these Consolidated Financial Statements).
During 2019, no single customer represented more than 10% of CSAV’s consolidated revenue. Similarly, no customers met this criterion in 2018.
Results by operating segment for the years ended December 31, 2019 and 2018, are presented as follows:
146 Compañía Sud Americana de Vapores S.A. For the year ended December 31, 2019 For the year ended December 31, 2018
Statement of Income Container Other Transport Container Other Transport Total Total by Operating Segment Shipping Services Shipping Services ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Revenue - 92,955 92,955 - 91,436 91,436
Cost of sales - (93,878) (93,878) - (87,187) (87,187)
Gross margin - (923) (923) - 4,249 4,249
Other income - 1,098 1,098 - 1,306 1,306
Administrative expenses (4,791) (7,365) (12,156) (4,155) (6,391) (10,546)
Other gains (losses) - 1,317 1,317 - 8,691 8,691
Net operating income (loss) (4,791) (5,873) (10,664) (4,155) 7,855 3,700
-
Finance income 37 555 592 - 660 660
Finance costs (10,159) (746) (10,905) (5,537) - (5,537)
Share of income (loss) of 147,812 - 147,812 13,974 - 13,974 associates
Exchange differences 6 (29) (23) (681) (507) (1,188)
Net income (loss) before tax 132,905 (6,093) 126,812 3,601 8,008 11,609
Income tax benefit (expense) from (1,591) 320 (1,271) 5,737 1,355 7,092 continuing operations
Net income (loss) from continuing 131,314 (5,773) 125,541 9,338 9,363 18,701 operations
Net income (loss) from - (925) (925) - (453) (453) discontinued operations
Net income (loss) for the year 131,314 (6,698) 124,616 9,338 8,910 18,248
Net income (loss) attributable to:
Net income (loss) attributable to 131,314 (6,698) 124,616 9,338 8,910 18,248 owners of the company
Net income (loss) for the year 131,314 (6,698) 124,616 9,338 8,910 18,248
2019 Annual Report 147 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
Assets and liabilities by segment as of December 31, 2019 and 2018, are summarized as follows:
As of December 31, 2019 As of December 31, 20198
Container Other Transport Container Other Transport Total Total Shipping Services Shipping Services ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Assets per segment 202,498 146,499 348,997 179,079 139,333 318,412
Associates and joint ventures 2,168,383 - 2,168,383 1,939,465 - 1,939,465
Liabilities per segment 247,926 45,267 293,193 95,713 31,961 127,674
Net assets 2,122,955 101,232 2,224,187 2,022,831 107,372 2,130,203
Cash flows by segment for the years ended December 31, 2019 and 2018, are presented as follows:
For the year ended December 31, 2019 Statement of Cash Flows by Operating Segments Container Shipping Other Transport Services Total ThUS$ ThUS$ ThUS$
Net cash flows provided by (used in) operating (4,791) 32,151 27,360 activities
Net cash flows provided by (used in) investing (112,296) 2,752 (109,544) activities
Net cash flows provided by (used in) financing 144,789 (33,317) 111,472 activities
Effect of exchange rate changes on cash and cash 6 (14) (8) equivalents
Increase (decrease) in cash and cash equivalents 27,708 1,572 29,280
148 Compañía Sud Americana de Vapores S.A. For the year ended December 31, 2018 Statement of Cash Flows by Operating Segments Container Shipping Other Transport Services Total ThUS$ ThUS$ ThUS$
Net cash flows provided by (used in) operating (4,155) (21,884) (26,039) activities
Net cash flows provided by (used in) investing 1,752 11,977 13,729 activities
Net cash flows provided by (used in) financing (5,055) - (5,055) activities
Effect of exchange rate changes on cash and cash (680) (57) (737) equivalents
Increase (decrease) in cash and cash equivalents (8,138) (9,964) (18,102)
Revenue detailed by geographic area is as follows. For freight revenue, the cargo’s country of origin is used.
Other Transport Services For the year ended December 31,
2019 2018 ThUS$ ThUS$
Asia 15,864 17,179
Europe 42,341 39,271
North and South America 34,750 34,986
Total 92,955 91,436
The Company uses the following criteria to measure results, assets and liabilities within each reported segment:
(i) Results for the segment is composed of revenues and expenses related to operations that are directly attributable to the reporting segment.
(ii) Results were recorded by measuring operating revenues and expenses using the same criteria defined in Note 3.23 of these Consolidated Financial Statements;
(iii) The assets and liabilities reported for the operating segment consist of all those that are directly involved in the provision of a certain service or operation and those directly or indirectly attributable to each segment.
2019 Annual Report 149 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
In accordance with IFRS 8, paragraph 33, non-current assets detailed by geographic segment are as follows:
As of December 31, 2019 As of December 31, 2018 Non-Current Assets (1) ThUS$ ThUS$
Asia 8,009 -
Europa 2,168,954 1,939,465
North and South America 13,259 14,593
Chile 13,259 14,593
Others - -
Total 2,190,222 1,954,058
(1) IIncludes balances of property, plant and equipment, investment property, intangible assets other than goodwill and equity method investments.
NOTE 7 CASH AND CASH EQUIVALENTS
Cash and cash equivalents are detailed in the following table:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Cash on hand 14 14
Bank balances 8,590 4,248
Time deposits 45,015 20,077
Total 53,619 24,339
As of both December 31, 2019 and 2018, the Company does not have any funds classified as cash and cash equivalents that are not freely available.
150 Compañía Sud Americana de Vapores S.A. As of December 31, 2019 and 2018, cash and cash equivalents are detailed as follows by currency:
As of December 31, 2019 As of December 31, 2018 Currency ThUS$ ThUS$
US dollar 52,343 23,161
Chilean peso 162 65
Euro 126 92
Real 1 1
Yuan 896 993
Other currencies 91 27
Total 53,619 24,339
NOTE 8 OTHER FINANCIAL ASSETS
Other financial assets are detailed as follows:
Non-Current As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Investments in other companies 63 63
Total other current financial assets 63 63
2019 Annual Report 151 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 9 TRADE AND OTHER RECEIVABLES
Trade and other receivables are detailed as follows:
Current As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Trade receivables 12,244 15,285
Impairment of trade receivables (169) (214)
Trade receivables, net 12,075 15,071
Other receivables 4,159 2,583
Impairment of other receivables -
Other receivables, net 4,159 2,583
Total receivables, net 16,234 17,654
Trade receivables are derived mainly from operations to provide vehicle transport services. Most current trade receivables are due within three months from the reporting date of these Consolidated Financial Statements.
There are no debtors classified as non-current for the years ended December 31, 2019 and 2018.
Other receivables primarily include freight payable from agencies, advances to suppliers, receivables from shipowners and receivables from personnel, among others.
The fair value of trade and other accounts receivable does not differ significantly from their carrying amount.
The Company records impairment provisions for trade receivables using the expected credit loss model. The estimated percentage per segment is detailed in the following chart:
152 Compañía Sud Americana de Vapores S.A. More than 210 Current 1 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days 121 to 180 days 181 to 210 days days
% Impairment estimate per 0.13% 0.13% 0.13% 0.13% 0.13% 2.94% 3.19% 10.21% segment
This estimate also considers certain special conditions described below:
Factor
Legal collections, checks issued with insufficient funds and other similar concepts 100%
Customers and agencies with a high risk of financial impairment 100%
Case-by-case analysis of particular past due debtors 100%
Trade and other receivables, net of impairment, are detailed by maturity in the following table:
As of December 31, 2019 As of December 31, 2018
No. of Customers ThUS$ No. of Customers ThUS$
Current 46 10,576 55 13,843
Due between 1 and 30 days 41 3,737 54 3,252
Due between 31 and 60 days 17 971 17 246
Due between 61 and 90 days 8 525 5 74
Due between 91 and 120 days 5 108 9 188
Due between 121 and 150 days 4 107 2 4
Due between 151 and 180 days 3 119 14 47
Due in more than 180 days 13 91 - 0
Closing balance 16,234 17,654
2019 Annual Report 153 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
Changes in impairment on trade and other receivables are detailed as follows:
As of December 31, 2019 As of December 31, 2018 Allowance for Doubtful Accounts ThUS$ ThUS$
Opening balance 214 280
Increase (decrease) in impairment for the year (45) (66)
Closing balance 169 214
Once out-of-court and legal collections have been exhausted, the respective receivables are written off against the provision that was recorded. The CSAV Group only uses the allowance method and not the direct write-off method in order to better control and visualize these accounts.
NOTE 10 BALANCES AND TRANSACTIONS WITH RELATED PARTIES
The net balance of accounts receivable from and payable to non-consolidated related parties is detailed in the following table:
As of December 31, 2019 As of December 31, 2018 Current ThUS$ ThUS$
Receivables from related parties 74 67
Payables to related parties (30,301) (104)
Total (30,227) (37)
RECEIVABLES FROM AND PAYABLES TO RELATED PARTIES:
Receivables from and payables to related parties arise from routine business transactions carried out under market conditions, with respect to price and payment.
No write-offs or provisions have been recorded during the period for accounts receivable from related parties.
As of December 31, 2019 and 2018, the Company has no receivables from or payables to related parties classified as non-current.
154 Compañía Sud Americana de Vapores S.A. Receivables from related parties are detailed as follows:
Current Taxpayer ID Country Company Transaction Relationship Currency No. 12.31.2019 12.31.2018 ThUS$ ThUS$
76.380.217-5 Chile Hapag-Lloyd Chile SpA Current account Common shareholder USD 74 67 and/or director
Total 74 67
Payables to related parties are detailed as follows:
A) PAYABLES TO RELATED PARTIES THAT ACCRUE INTEREST:
Taxpayer ID Annual 12.31.2019 12.31.2018 Country Company Transaction Relationship Currency Amortization No. Interest Rate ThUS$ ThUS$
91.705.000-7 Chile Quiñenco Loan Parent company USD 4.24% Upon maturity 30,194 - S.A.
Total 30,194 -
B) PAYABLES TO RELATED PARTIES THAT DO NOT ACCRUE INTEREST:
Corrientes Taxpayer ID Country Company Transaction Relationship Currency No. 12.31.2019 12.31.2018 ThUS$ ThUS$
92.048.000-4 Chile SAAM S.A. Current account Common shareholder USD 79 74 and/or director
Foreign Brazil SAAM Smit Towage Current account Common shareholder USD 28 20 Brasil S.A. and/or director
99.567.620-6 Chile Terminal Puerto Arica Current account Common shareholder USD - 10 S.A. and/or director
Total 107 104
2019 Annual Report 155 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
TRANSACTIONS WITH RELATED PARTIES:
The following table details transactions with related parties:
Amount of the Transaction for the Year Ended December 31, Amount of the Transaction for the Year Ended December 31,
Company Taxpayer ID No. Country Relationship Transaction 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$
Banco Itau Chile (*) 76.645.030-K Chile Common shareholder and/or Interest on loans 769 2,122 (769) (2,122) director
Ecuaestibas S.A. Foreign Ecuador Common shareholder and/or Services received 140 194 (100) (192) director
Banco Estado de Chile 97.030.000-7 Chile Common shareholder and/or Sale of real estate 2,526 - 2,141 - director
Hapag Lloyd Chile SPA 76.380.217-5 Chile Common shareholder and/or Real estate lease 819 882 819 882 director
Iquique Terminal Internacional S.A 96.915.330-0 Chile Common shareholder and/or Port services received - 13 - (13) director
Quiñenco S.A. 91.705.000-7 Chile Parent company Loans (net) 30,000 - - -
Quiñenco S.A. 91.705.000-7 Chile Parent company Interest on loans 1,257 - (1,257) -
Cia. de Seguros de Vida Consorcio 99.012.000-5 Chile Common shareholder and/or Loans received - - Nacional de Seguros SA director
Cia. de Seguros de Vida Consorcio 99.012.000-5 Chile Common shareholder and/or Interest on loans 432 - (432) Nacional de Seguros SA director
Banco Consorcio 99.500.410-0 Chile Common shareholder and/or Loans received 35,000 - director
Banco Consorcio 99.500.410-0 Chile Common shareholder and/or Interest on loans 1,175 - (1,175) - director
SAAM S.A. 92.048.000-4 Chile Common shareholder and/or Services received 382 383 (312) (375) director
SAAM Smit Towage Brasil S.A. Foreign Brazil Common shareholder and/or Services received 217 195 (187) (144) director
Terminal Portuario de Arica S.A. (*) 99.567.620-6 Chile Common shareholder and/or Port services received 12 94 (12) (94) director
(*) As of the second quarter, these companies are no longer related.
156 Compañía Sud Americana de Vapores S.A. TRANSACTIONS WITH RELATED PARTIES:
The following table details transactions with related parties:
Amount of the Transaction for the Year Ended December 31, Amount of the Transaction for the Year Ended December 31,
Company Taxpayer ID No. Country Relationship Transaction 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$
Banco Itau Chile (*) 76.645.030-K Chile Common shareholder and/or Interest on loans 769 2,122 (769) (2,122) director
Ecuaestibas S.A. Foreign Ecuador Common shareholder and/or Services received 140 194 (100) (192) director
Banco Estado de Chile 97.030.000-7 Chile Common shareholder and/or Sale of real estate 2,526 - 2,141 - director
Hapag Lloyd Chile SPA 76.380.217-5 Chile Common shareholder and/or Real estate lease 819 882 819 882 director
Iquique Terminal Internacional S.A 96.915.330-0 Chile Common shareholder and/or Port services received - 13 - (13) director
Quiñenco S.A. 91.705.000-7 Chile Parent company Loans (net) 30,000 - - -
Quiñenco S.A. 91.705.000-7 Chile Parent company Interest on loans 1,257 - (1,257) -
Cia. de Seguros de Vida Consorcio 99.012.000-5 Chile Common shareholder and/or Loans received - - Nacional de Seguros SA director
Cia. de Seguros de Vida Consorcio 99.012.000-5 Chile Common shareholder and/or Interest on loans 432 - (432) Nacional de Seguros SA director
Banco Consorcio 99.500.410-0 Chile Common shareholder and/or Loans received 35,000 - director
Banco Consorcio 99.500.410-0 Chile Common shareholder and/or Interest on loans 1,175 - (1,175) - director
SAAM S.A. 92.048.000-4 Chile Common shareholder and/or Services received 382 383 (312) (375) director
SAAM Smit Towage Brasil S.A. Foreign Brazil Common shareholder and/or Services received 217 195 (187) (144) director
Terminal Portuario de Arica S.A. (*) 99.567.620-6 Chile Common shareholder and/or Port services received 12 94 (12) (94) director
(*) As of the second quarter, these companies are no longer related.
2019 Annual Report 157 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
COMPENSATION OF BOARD OF DIRECTORS AND KEY PERSONNEL
(A) BOARD COMPENSATION
During the year ended December 31, 2019, the Company’s directors have received ThUS$369 (ThUS$404 as of December 31, 2018) for attending board and committee meetings.
(B) COMPENSATION OF KEY PERSONNEL
Key personnel include executives who define the CSAV Group’s strategic policies and have a direct impact on the results of the business.
Compensation of the CSAV Group’s key management personnel amounts to ThUS$2,764 for the year ended December 31, 2019 (ThUS$1,070 for the year ended December 31, 2018).
For the year ended December 31, 2019 2019 2018 ThUS$ ThUS$
Short-term employee benefits 1,074 1,000
Other benefits 1,690 70
Total 2,764 1,070
On average, four CSAV executives were classified as key personnel during the year ended December 31, 2019. On average, four CSAV executives were classified as key personnel during the same period in 2018.
The Company has not given any guarantees on behalf of key management personnel.
The Company does not have any compensation plans for key management personnel based on share price.
158 Compañía Sud Americana de Vapores S.A. NOTE 11 INVENTORIES
The Company’s inventories as of December 31, 2019 and 2018, are detailed as follows:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Fuel 1,882 4,832
Other inventories 2 -
Total 1,884 4,832
The items included under fuel correspond to fuel found on vessels in operation that will be consumed in the normal course of services provided. These entries are valued in accordance with Note 3.18.
Fuel consumed and recorded in net income or loss under continuing operations amounts to ThUS$17,231 for the year ended December 31, 2019 and ThUS$19,824 for the year ended December 31, 2018.
NOTE 12 HEDGE ASSETS AND LIABILITIES
Hedge assets and liabilities are presented under other current financial assets and other current financial liabilities, respectively: As of December 31, 2019 and 2018, the Company has hedge contracts in effect.
As of December 31, 2019 As of December 31, 2018
Current Note Assets Liabilities Assets Liabilities ThUS$ ThUS$ ThUS$ ThUS$
Fuel swaps (a) 8 - - - (756)
Total - - - (756)
2019 Annual Report 159 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(A) FUEL PRICE HEDGING CONTRACTS
Details of CSAV’s fuel price hedging contracts for the period ended December 31, 2019, were as follows:
As of December 31, 2019
Recognized in Date of Recognized in Derivative Institution Date of Maturity Currency Net Income or Total Agreement Equity Loss ThUS$ ThUS$ ThUS$
Swap Goldman Sachs Nov -2018 Dec -2019 USD - (408) (408)
Swap Goldman Sachs Jan -2019 Nov -2019 USD - 225 225
Total - (183) (183)
Details of CSAV’s fuel price hedging contracts for the year ended December 31, 2018, were as follows:
As of December 31, 2018
Recognized in Date of Recognized in Derivative Institution Date of Maturity Currency Net Income or Total Agreement Equity Loss ThUS$ ThUS$ ThUS$
Swap Koch Supply & Feb -2018 Jun -2018 USD - 275 275 Trading
Swap Goldman Sachs Nov -2018 Dec -2019 USD (756) - (756)
Total (756) 275 (481)
(B) INTEREST RATE HEDGES
As of December 31, 2019, the CSAV Group has not contracted any interest rate swaps to hedge its exposure to variable interest rates.
(C) EXCHANGE RATE HEDGES
As of December 31, 2019, the CSAV Group does not have any exchange rate hedge contracts.
160 Compañía Sud Americana de Vapores S.A. NOTA 13 OTHER NON-FINANCIAL ASSETS
Other non-financial assets are detailed below:
Other Non-Financial Current Non-Current Assets As of December 31, 2019 As of December 31, 2018 As of December 31, 2019 As of December 31, 2018 Current ThUS$ ThUS$ ThUS$ ThUS$
Prepaid charters 74 66 - -
In-transit expenses - 1,156 - -
Others - - - -
Total Current 43 - 1 1
Total corriente 117 1,222 1 1
Prepaid insurance is insurance premiums for shipping operations and certain real estate and personal property that remain in effect after the date these Consolidated Financial Statements were closed.
Prepaid charters are for vessels operated by the CSAV group, according to the contractual terms and conditions with shipowners.
The item other includes payments of other customary duties and guarantees for maritime transport operations.
2019 Annual Report 161 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 14 INVESTMENTS IN SUBSIDIARIES
(A) CONSOLIDATED SUBSIDIARIES
The Company has consolidated investments in subsidiaries, as described in Note 3 of these Consolidated Financial Statements, which are detailed as follows:
Ownership Interest as of December 31,
Chilean National ID:. Company Country Currency 2,019 2,018
Direct Indirect Total Direct Indirect Total
Foreign CSAV Germany Container Holding GmbH Panama US dollars 100.00% 100.00% 100.00% 100.00%
Foreign Tollo Shipping Co. S.A. and Subsidiaries Mexico US dollars 100.00% - 100.00% 100.00% - 100.00%
Foreign Norgistics México S.A. de C.V. Brazil US dollars - 100.00% 100.00% - 100.00% 100.00%
Foreign Navibras Comercial Maritima e Afretamentos Ltda. Panama US dollars - 100.00% 100.00% - 100.00% 100.00%
Foreign Corvina Shipping Co. S.A Chile US dollars 100.00% - 100.00% 100.00% - 100.00%
96838050-7 Compañía Naviera Rio Blanco S.A. Chile US dollars 99.00% 1.00% 100.00% 99.00% 1.00% 100.00%
76028729-6 Norgistics Holding S.A. and Subsidiaries Peru US dollars 99.00% 1.00% 100.00% 99.00% 1.00% 100.00%
Foreign Norgistics Peru S.A.C. (1) China RMB - - - 23.50% 76.50% 100.00%
Foreign Norgistics (China) Ltd. [Shenzhen] China RMB 100.00% - 100.00% 100.00% - 100.00%
(1) This subsidiary was liquidated in April 2019, as described in Note 2 b) and Note 35 of this report.
162 Compañía Sud Americana de Vapores S.A. NOTE 14 INVESTMENTS IN SUBSIDIARIES
(A) CONSOLIDATED SUBSIDIARIES
The Company has consolidated investments in subsidiaries, as described in Note 3 of these Consolidated Financial Statements, which are detailed as follows:
Ownership Interest as of December 31,
Chilean National ID:. Company Country Currency 2,019 2,018
Direct Indirect Total Direct Indirect Total
Foreign CSAV Germany Container Holding GmbH Panama US dollars 100.00% 100.00% 100.00% 100.00%
Foreign Tollo Shipping Co. S.A. and Subsidiaries Mexico US dollars 100.00% - 100.00% 100.00% - 100.00%
Foreign Norgistics México S.A. de C.V. Brazil US dollars - 100.00% 100.00% - 100.00% 100.00%
Foreign Navibras Comercial Maritima e Afretamentos Ltda. Panama US dollars - 100.00% 100.00% - 100.00% 100.00%
Foreign Corvina Shipping Co. S.A Chile US dollars 100.00% - 100.00% 100.00% - 100.00%
96838050-7 Compañía Naviera Rio Blanco S.A. Chile US dollars 99.00% 1.00% 100.00% 99.00% 1.00% 100.00%
76028729-6 Norgistics Holding S.A. and Subsidiaries Peru US dollars 99.00% 1.00% 100.00% 99.00% 1.00% 100.00%
Foreign Norgistics Peru S.A.C. (1) China RMB - - - 23.50% 76.50% 100.00%
Foreign Norgistics (China) Ltd. [Shenzhen] China RMB 100.00% - 100.00% 100.00% - 100.00%
(1) This subsidiary was liquidated in April 2019, as described in Note 2 b) and Note 35 of this report.
2019 Annual Report 163 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(B) SUMMARIZED FINANCIAL INFORMATION:
The summarized financial information of the Company’s subsidiaries as of December 31, 2019 and 2018, is as follows:
AS OF DECEMBER 31, 2019:
Non-Current Net Income (Loss) Current Assets Non-Current Assets Current Liabilities Revenue Company Name Liabilities for the Year ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Tollo Shipping Co. 779 - 781,047 - - (911) S.A. and Subsidiaries
Corvina Shipping 755,256 13 - - - (14) Co. S.A.
Norgistics (China) 1,008 - - - - 298 Ltd.
Norgistics Holding 1,877 - 128 - - 39 S.A. and Subsidiaries
Compañía Naviera 23 - 2,250 - - (798) Rio Blanco S.A.
CSAV Germany Container Holding 5,640 2,168,384 1,509,806 - - 126,974 GmbH
164 Compañía Sud Americana de Vapores S.A. AS OF DECEMBER 31, 2018:
Non-Current Net Income (Loss) Current Assets Non-Current Assets Current Liabilities Revenue Company Name Liabilities for the Year ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Tollo Shipping Co. 1,121 - 780,323 - - (677) S.A. and Subsidiaries
Corvina Shipping 755,267 22 2,662 - - (103) Co. S.A.
Norgistics (China) 1,080 - 356 - 19 (626) Ltd.
Norgistics Holding 1,971 - 94 - - (197) S.A. and Subsidiaries
Compañía Naviera 23 974 2,426 - - (27) Rio Blanco S.A.
CSAV Germany Container Holding 53 1,939,466 1,371,085 - - 24,849 GmbH
As of December 31, 2019 and 2018, there are no subsidiaries with non-controlling interests.
CSAV granted loans of M€ 791,598, equivalent to ThUS$794,116, to its subsidiary CSAV Germany Container Holding GmbH during its 2014 merger with HLAG. These loans, granted in euros, mature in 10 years and accrue annual interest of 4.7%. As a result, CSAV recognizes the interest accrued on a monthly basis and eliminates the transaction upon consolidation. Any exchange differences generated and interest on these loans accrued by CSAV are not eliminated to determine taxable income in Chile, in accordance with current tax law. As of December 31, 2019, the balance of this loan is Th€ 982,829, equivalent to ThUS$1,102,073.
2019 Annual Report 165 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(C) MOVEMENTS IN INVESTMENTS:
c.1) During the year ended December 31, 2019, the CSAV Group has not acquired or sold any investments in subsidiaries.
c.1.1) On April 3, 2019, the subsidiary Norgistics Perú S.A.C. was liquidated. It was formerly consolidated by Norgistics Holding S.A.
c.2) During the year ended December 31, 2018, the CSAV Group has recorded the following movements in investments in subsidiaries.
c.2.1) On August 21, 2018, Tollo Shipping Co. S.A. (“Tollo”) sold its subsidiary Norgistics (China) Ltd. [Hong Kong] to a third party. The outcome of the sale is presented in the Statement of Income within income (loss) from discontinued operations.
c.2.2) During the year 2018, it received payment on the balance from the sale of the subsidiary Norgistics Chile S.A. in December 2017. That cash inflow is presented in the Statement of Cash Flows under “Cash flows arising from the loss of control of subsidiaries” for ThUS$538.
c.2.3) On February 2, 2018, CSAV participated in a capital increase by Norgistics Perú, acquiring 23.50% of the company.
c.2.4) On January 18, 2018, Norgistics Holding S.A. sold its subsidiary Norgistics México S.A de C.V to the CSAV Group subsidiary, Tollo Shipping Co. S.A.
c.2.5) On January 19, 2018, Norgistics Holding S.A. sold its subsidiary Norgistics (China) Ltd. [Hong Kong] to the CSAV Group subsidiary, Tollo Shipping Co. S.A.
166 Compañía Sud Americana de Vapores S.A. NOTE 15 EQUITY METHOD INVESTMENTS
As described in Note 1 to these Consolidated Financial Statements, as of December 31, 2019, CSAV has a 27.79% interest in and is one of the largest shareholders of Hapag-Lloyd AG (HLAG), which is headquartered in Hamburg, Germany. In addition, with respect to its investment in HLAG, the Company is party to a joint control agreement with the two other shareholders of this German company: the City of Hamburg, through its holding company HGV Hamburger Gesellschaft für Vermögens- und Beteiligungsmanagement mbH (HGV), which holds 13.86% of the share capital; and German businessman Klaus Michael Kühne, through Kühne Maritime GmbH (KM), who owns 29.40%; together, they hold approximately 71.05% of HLAG. By virtue of the above, based on CSAV’s shareholding in HLAG and the existence and characteristics of the aforementioned joint control agreement, in accordance with IFRS 11, CSAV’s investment in HLAG has been defined as a joint venture that must be accounted for using the equity method in accordance with IAS 28. This definition has remained unchanged since the date on which CSAV acquired its original interest in HLAG during the business combination of its container shipping business and HLAG in 2014.
Movements in investments in associates and joint ventures as of December 31, 2019, are detailed as follows:
Name of Associate
or Joint Venture ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Interest Interest Country Reserves Reserves Share of Other of Share Local Currency Opening Balance Opening Balance Direct and Indirect and Indirect Direct Ownership Interest Interest Ownership Capital Movements Capital Dividends Received Dividends Received Dividends Received Share of Other Equity of Share Share of Income (Loss) (Loss) Income of Share Comprehensive Income Income Comprehensive Gain (Loss) on Acquisition of of on Acquisition (Loss) Gain
Hapag-Lloyd A.G. Germany USD 27.79% 1,939,465 120,339 34,567 113,245 (24,504) (6,686) (8,043) 2,168,383
Total 1,939,465 120,339 34,567 113,245 (24,504) (6,686) (8,043) 2,168,383
2019 Annual Report 167 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
Movements in CSAV’s investment in the Hapag-Lloyd AG (HLAG) joint venture during the year ended December 31, 2019, are detailed as follows.
(a) Gain (Loss) on Acquisition of Interest: As part of the plan to acquire HLAG shares, during 2019 CSAV increased its interest by 1.93%, equivalent to ThUS$120,339, thus giving it 27.79% ownership of the German company. This investment was recognized at acquisition cost. In accordance with IAS 28, CSAV also determined the fair value of the net assets acquired based on the PPA report for HLAG, generating badwill of ThUS$34,567, which was recognized in net income as a gain for CSAV.
(b) Share of Income (Loss): HLAG’s net income attributable to owners of the company for the year ended December 31, 2019, reached ThUS$405,228. Based on the percentage owned by CSAV at the end of each quarter in 2019, the Company recognized net income of ThUS$110,636. To that amount, CSAV must add the fair value adjustment of HLAG’s assets and liabilities, based on the Purchase Price Allocation (PPA) reports prepared for each acquisition. That adjustment for the year ended December 31, 2019, based on the percentage ownership each quarter, gives an improved result of ThUS$2,609 in addition to its direct share of HLAG’s results. With that, the result from CSAV’s interest in that joint venture for the year ended December 31, 2019, was net income of ThUS$113,245.
(c) Share of Other Comprehensive Income (Loss) and Other Equity Reserves: HLAG recorded other comprehensive loss (in US dollars) for the period ended December 31, 2019, consisting of a loss of ThUS$65,646 from revaluing its defined benefit plans (CSAV’s stake is ThUS$17,696), a loss of ThUS$7,922 for exchange differences (CSAV’s stake is ThUS$2,083) and a loss of ThUS$17,285 on cash flow hedges (CSAV’s stake is ThUS$4,725), giving a total loss of ThUS$90,853 and a loss of ThUS$24,504 for CSAV’s stake in the other comprehensive loss of the joint venture. During the period, the Company also recognized its share of HLAG’s other equity movements, namely a decrease of ThUS$6,686 in equity presented in other reserves.
(d) Dividend: During the second quarter of 2019, it received a dividend of ThUS$8,043.
168 Compañía Sud Americana de Vapores S.A. For example, since HLAG is a publicly-listed corporation in Germany that trades its shares on several stock exchanges in that country, the market value of CSAV’s investment in the joint venture as of December 31, 2019, was ThUS$4,156,469.
Considering the indications of impairment present as of December 31, 2018, CSAV conducted impairment testing on its investment in HLAG as of the end of the year and concluded that the recoverable amount of its investment in HLAG is greater than its carrying amount, using value in use methodology in IAS 36.
In addition, movements in investments in associates and joint ventures for the year ended December 31, 2018, are detailed as follows:
Name of Associate or Joint Venture ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ 31, 2018 2018 31, Interest Interest Country Reserves Reserves Share of Other of Share Opening Balance Opening Balance Direct and Indirect and Indirect Direct Ownership Interest Interest Ownership Dividends Received Dividends Received Capital Movements Movements Capital Functional Currency Currency Functional Share of Other Equity of Share Share of Income (Loss) (Loss) Income of Share Comprehensive Income Income Comprehensive Balance as of December December as of Balance Gain (Loss) on Acquisition of of on Acquisition (Loss) Gain
US Hapag-Lloyd A.G. Germany 25.86% 1,932,258 28,492 926 13,048 (7,139) 2,122 (30,242) 1,939,465 dollars
Total 1,932,258 28,492 926 13,048 (7,139) 2,122 (30,242) 1,939,465
2019 Annual Report 169 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
Movements in CSAV’s investment in the Hapag-Lloyd AG (HLAG) joint venture during the period ended December 31, 2018, are detailed as follows:
(a) Result due to Dilution of Interest: During the second quarter of 2018, CSAV increased its interest by 0.4%, equivalent to ThUS$28,492, thus giving it a 25.86% share of the German company. In accordance with IAS 28, CSAV calculated the fair value of the net assets acquired in purchasing the additional 0.4% based on the most recent PPA report on HLAG, which gave a value of ThUS$29,418 and generated badwill of ThUS$926, which was recognized in net income or loss as a gain for CSAV, in accordance with IFRS.
(b) Share of Income (Loss): HLAG’s net income attributable to owners of the company for the year ended December 31, 2018, reached ThUS$43,500. Based on the percentage owned by CSAV at the end of each quarter in 2018, the Company recognized net income of ThUS$11,431. To that amount, CSAV must add the fair value adjustment of HLAG’s assets and liabilities, based on the Purchase Price Allocation (PPA) reports prepared for each acquisition. That adjustment for the period ended December 31, 2018, based on the percentage ownership each quarter, gives an improved result of ThUS$1,617 in addition to its direct share of HLAG’s results. With that, the result from CSAV’s interest in that joint venture for the year ended December 31, 2018, was net income of ThUS$2,757.
(c) Share of Other Comprehensive Income (Loss) and Other Equity Reserves: HLAG recorded other comprehensive loss (in US dollars) for the period ended December 31, 2018, consisting of a gain of ThUS$13,500 from revaluing its defined benefit plans (CSAV’s stake is ThUS$3,488), a loss of ThUS$18,000 for exchange differences (CSAV’s stake is ThUS$4,697) and a loss of ThUS$21,800 on cash flow hedges and costs (CSAV’s stake is ThUS$5,930), giving a total loss of ThUS$26,300 and a loss of ThUS$7,139 for CSAV’s stake in the other comprehensive loss of the joint venture. During the period, the Company also recognized its share of HLAG’s other equity movements, namely an increase of ThUS$2,122 in equity presented in other reserves.
170 Compañía Sud Americana de Vapores S.A. Summarized financial information regarding associates and joint ventures as of:
Hapag-Lloyd AG. (1) Name of Associate or Joint Venture As of December 31, 2019 2018
Ownership interest 27.79% 25.86%
ThUS$ ThUS$
Current assets 2,680,723 2,812,600
Non-current assets 15,501,003 14,709,100
Current liabilities 4,481,997 3,866,800
Non-current liabilities 6,269,385 6,487,400
Revenue 14,114,540 13,741,100
Cost of sales 13,246,702 12,489,700
Net income (loss) for the year (2) 405,228 43,500
Other comprehensive income (loss) (90,853) (26,300)
Cash and cash equivalents 574,121 752,400
Current financial liabilities 851,513 776,100
Non-current financial liabilities 4,988,734 6,001,600
Depreciation and amortization 1,314,720 821,200
Interest income 13,664 18,600
Interest expense 457,765 450,100
Income tax expense 48,072 37,700
(1) This information comes directly from the Consolidated Financial Statements of HLAG in US$ and, therefore, does not include the effects of the PPAs presented by CSAV. (2) Net income (loss) attributable to the owners of the Company.
NOTE 16 INTANGIBLE ASSETS OTHER THAN GOODWILL
As of December 31, 2019 and 2018, the Company has no intangible assets other than goodwill.
2019 Annual Report 171 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 17 GOODWILL
Goodwill is detailed as follows:
As of December 31, 2019 As of December 31, 2018
ThUS$ ThUS$
Norgistics Holding S.A. 17 17
Total 17 17
There have been no movements in goodwill for the periods ended December 31, 2019 and 2018.
Goodwill has been generated in the acquisition of subsidiaries and businesses that have enabled the Company to operate its business segments.
NOTE 18 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (PPE) are summarized as follows:
As of December 31, 2019 As of December 31, 2018
Accumulated Accumulated Gross PP&E Net PP&E Gross PP&E Net PP&E Depreciation Depreciation ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Buildings
Machinery and equipment 2 - 2 - - -
Office equipment 82 (69) 13 68 (64) 4
Rights-of-use assets 35,588 (27,008) 8,580 - - -
Other 1,128 - 1,128 1,128 - 1,128
Total 38,478 (27,509) 10,969 2,874 (479) 2,395
The item Buildings includes buildings and facilities belonging to the CSAV Group that are used for its normal operations. As of the date these Consolidated Financial Statements were closed, the Company and its subsidiaries had not detected any signs of impairment in its property, plant and equipment.
172 Compañía Sud Americana de Vapores S.A. The details and movements of the different categories of property, plant and equipment as of December 31, 2019, are provided in the following table:
Other Property, Machinery and Office Equipment, Right-of-Use Assets Property, Plant and For the year ended Buildings, Net Plant and Equipment, Equipment, Net Net (*) Equipment, Net December 31, 2019 ThUS$ Net ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Additions - 2 14 5,089 - 5,105
Depreciation (17) - (5) (27,008) - (27,030) expense
Adoption of IFRS 16 - - - 30,499 - 30,499
Total changes in PPE (17) 2 9 8,580 - 8,574
Closing balance 1,246 2 13 8,580 1,128 10,969
(*) This corresponds to lease commitments mainly related to vessel charters.
The details and movements of the different categories of property, plant and equipment as of December 31, 2018, are provided in the following table:
Other Property, Plant and Total Property, Plant and For the year ended December Buildings, Net Office Equipment, Net Equipment, Net Equipment, Net 31, 2018 ThUS$ ThUS$ ThUS$ ThUS$
Opening balance 1,592 10 1,128 2,730
Additions - 3 - 3
Transfers to (from) investment (315) - - (315) property
Depreciation expense (14) (9) - (23)
Total changes in PPE (329) (6) - (335)
Closing balance 1,263 4 1,128 2,395
2019 Annual Report 173 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 19 INVESTMENT PROPERTY
The details and movements of the different categories of investment property as of December 31, 2019 and 2018, are provided in the following table:
Land Buildings, Net Investment Property For the year ended December 31, 2019 ThUS$ ThUS$ ThUS$
Opening balance 1,963 10,235 12,198
Depreciation expense - (122) (122)
Disposals (sale of assets) - (1,206)
Total changes - (1,328) (1,328)
Closing balance 1,963 8,907 10,870
Land Buildings, Net Investment Property For the year ended December 31, 2018 ThUS$ ThUS$ ThUS$
Opening balance 1,963 13,331 15,294
Transfers from (to) PPE - 315 315
Depreciation expense - (160) (160)
Disposals (sale of assets) -
Total changes - (3,096) (3,096)
Closing balance 1,963 10,235 12,198
As of December 31, 2019, the Company has classified part of its property, plant and equipment that is not directly used in its operations but is leased to third parties or kept for investment purposes as investment property in accordance with the accounting policy described in section 3.6 to these Consolidated Financial Statements.
In May 2019, the Company sold part of its investment property and recorded a gain on the sale within other gains in the Statement of Income (See Note 30).
During the years ended December 31, 2019 and 2018, the Company has disclosed rental income on its investment property of ThUS$1,098 and ThUS$1,300, respectively, in other income.
The estimated fair value of the Company’s investment property as of December 31, 2019, amounts to ThUS$18,200, which is greater than its carrying amount.
174 Compañía Sud Americana de Vapores S.A. NOTE 20 TAX ASSETS AND LIABILITIES
The balances of current and non-current tax assets and liabilities are detailed as follows:
CURRENT TAX ASSETS:
As of December 31, 2019 As of December 31, 2018 Current Tax Assets ThUS$ ThUS$
Other recoverable taxes 356 261
Total current tax assets 356 261
CURRENT TAX LIABILITIES:
As of December 31, 2019 As of December 31, 2018 Current Tax Liabilities ThUS$ ThUS$
Income taxes payable 947 29
Total current tax liabilities 947 29
NOTE 21 CURRENT AND DEFERRED INCOME TAXES
(a) According to tax laws and regulations in effect as of December 31, 2019, using the current rate of 27% as stipulated by Law No. 20,780, CSAV has calculated an estimated tax loss of ThUS$923,762. Therefore, it has not made a standalone income tax provision. As of December 31, 2018, the Company had a standalone tax loss of ThUS$922,780, calculated in estimating deferred taxes in its financial statements.
(b) As of December 31, 2019, CSAV has recorded a provision for single tax under Article 21 of the Income Tax Law of ThUS$24. The Company had a provision for this tax of ThUS$29 as of December 31, 2018.
(c) As of December 31, 2019 and 2018, the Company has no accumulated tax losses.
(d) Deferred Income Taxes
2019 Annual Report 175 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
Deferred tax assets and liabilities are offset if the right to set-off has been legally recognized and if the deferred taxes are associated with the same tax authority, and if the type of temporary differences is equivalent.
The detail of deferred tax assets as of December 31, 2019 and 2018, is as follows:
Deferred Tax Assets
Types of Temporary Differences As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Tax losses 249,416 250,124
Provisions 5,071 4,251
Revaluation of financial instruments - 204
Total 254,487 254,579
The Company has recorded the aforementioned amount for the balance of tax losses as of period end as deferred tax assets, since it is likely that its future tax earnings will enable it to use that asset, in accordance with IAS 12. As of December 31, 2019, the Company estimates that these future tax earnings will come mainly from the container shipping segment and, specifically, from dividends from CSAV’s investment in the HLAG joint venture through its subsidiary in Germany, CSAV Germany Container Holding GmbH.
The detail of deferred tax liabilities as of December 31, 2019 and 2018, is as follows:
Deferred Tax Liabilities
Types of Temporary Differences As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Others (502) (254)
Total (502) (254)
176 Compañía Sud Americana de Vapores S.A. The following table shows movements of deferred tax assets and liabilities recorded during the year ended December 31, 2019:
Recognized in Net Income Balance as of December 31, Types of Temporary Balance as of January 1, 2019 Recognized in Equity (Loss) 2019 Differences ThUS$ ThUS$ ThUS$ ThUS$
Tax losses 250,124 (708) - 249,416
Provisions 4,251 820 - 5,071
Other deferred taxes 204 - (204) -
Total deferred tax assets 254,579 112 (204) 254,487
Recognized in Net Income Balance as of December 31, Types of Temporary Balance as of January 1, 2019 Recognized in Equity (Loss) 2019 Differences ThUS$ ThUS$ ThUS$ ThUS$
Other deferred taxes 254 248 - 502
Total deferred tax liabilities 254 248 - 502
The following table shows movements of deferred tax assets and liabilities recorded during the year ended December 31, 2018:
Recognized in Net Income Balance as of December 31, Types of Temporary Balance as of January 1, 2018 Recognized in Equity (Loss) 2018 Differences ThUS$ ThUS$ ThUS$ ThUS$
Tax losses 244,600 5,524 - 250,124
Provisions 2,208 2,043 - 4,251
Other deferred taxes - - 204 204
Total deferred tax assets 246,808 7,567 204 254,579
Recognized in Net Income Balance as of December 31, Types of Temporary Balance as of January 1, 2018 Recognized in Equity (Loss) 2018 Differences ThUS$ ThUS$ ThUS$ ThUS$
Other deferred taxes 332 (78) - 254
Total deferred tax liabilities 332 (78) - 254
2019 Annual Report 177 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(e) Effect of current and deferred income taxes on net income or loss
For the year ended December 31, 2019 2018 ThUS$ ThUS$
CURRENT INCOME TAX EXPENSE
Current tax expense (*) (188) (521)
Expense for ITL Art. 21 tax (*) (24) (29)
Adjustments to prior year taxes (923) (2)
Other tax expenses - (1)
Total current tax expense, net (1,135) (553)
DEFERRED TAX EXPENSE
Origin and reversal of temporary differences (136) 7,645
Reversal of value of deferred tax assets - -
Other deferred tax expense -
Total deferred tax benefit (expense), net (136) 7,645
Income tax benefit (expense) (1,271) 7,092
Income tax benefit (expense), continuing operations (1,271) 7,092
Income tax benefit (expense), discontinued (463) (199) operations
(*) Mainly foreign taxes
178 Compañía Sud Americana de Vapores S.A. (f) Taxes recognized in net income or loss by foreign and Chilean entities
For the year ended December 31, 2019 2018 ThUS$ ThUS$
CURRENT TAX BENEFIT (EXPENSE):
Current tax benefit (expense), net, foreign - -
Current tax benefit (expense), net, Chilean (1,135)
Current tax benefit (expense), net (1,135) (553)
DEFERRED TAX BENEFIT (EXPENSE):
Deferred tax benefit (expense), foreign - -
Deferred tax benefit (expense), Chilean (136) 7,645
Deferred tax benefit (expense), net (136) 7,645
Income tax benefit (expense), net (1,271) 7,092
Income tax benefit (expense), continuing operations (1,271) 7,092
Income tax benefit (expense), discontinued (463) (199) operations
2019 Annual Report 179 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(g) Reconciliation of Effective Tax Rate
An analysis and reconciliation of the income tax rate calculated in accordance with Chilean tax legislation and of the effective tax rate are detailed below:
For the year ended December 31,
Reconciliation of Effective Tax Rate 2019 2018 ThUS$ ThUS$
Net income (loss) for the year 124,616 18,248
Total income tax benefit (expense) (1,271) 7,092
Net income (loss) before tax 125,887 11,156
Reconciliation of effective tax rate 27.00% (33,989) 27.00% (3,012)
Tax effect of rates in other jurisdictions 0.11% (137) (3.41%) (380)
Tax effect of non-taxable revenue (26.10%) 32,855 88.95% 9,923
Other increase (decrease) in statutory taxes 0.00% - 5.03% 561
Total adjustments to tax benefit (expense) using statutory rate (25.99%) 32,718 90.57% 10,104
Income tax benefit (expense) using effective rate 1.01% (1,271) 117.57% 7,092
Income tax benefit (expense), continuing operations (1,271) 7,092
Income tax benefit (expense), discontinued operations (463) (199)
As mentioned in Note 14 of these Consolidated Financial Statements, the euro depreciated with respect to the dollar during the year ended December 31, 2019, thus generating a negative exchange difference on the interest accrued and principal owed on the euro- denominated loan that CSAV (standalone entity) maintains with its consolidated German subsidiary CSAV Germany Container Holding GmbH. This gave rise to a financial loss for the Company, which is eliminated for consolidation purposes but for tax purposes results in an increase in the tax loss presented by CSAV (standalone) and, therefore, an increase in the deferred tax asset recognized for that tax loss carryforward as of December 31, 2019.
180 Compañía Sud Americana de Vapores S.A. NOTE 22 OTHER FINANCIAL LIABILITIES
Other financial liabilities are detailed as follows:
As of December 31, 2019 As of December 31, 2018 Other Financial Liabilities Current Current ThUS$ ThUS$
Bank loans (a) 45,286 10,768
Bonds payable (c) 754 -
Hedge liabilities (Note 12) - 756
Finance lease liabilities (d) 7,871 -
Total current 53,911 11,524
As of December 31, 2019 As of December 31, 2018 Other Financial Liabilities Non-Current Non-Current ThUS$ ThUS$
Bank loans (b) 24,731 34,603
Bonds payable (c) 148,965 49,586
Hedge liabilities (Note 12) - -
Other financial liabilities - -
Total non-current 173,696 84,189
Balances of other financial liabilities are reconciled as follows:
As of December Cash Flows Changes that Do Not Affect Cash Flows As of December 31, 31, 2018 Principal Interest Accrued Interest Other 2019 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
BANK LOANS 10,768 45,286
Bonds payable - - (5,207) 5,954 7 754
Hedge liabilities 756 - - - (756) -
Finance lease liabilities - (32,571) (746) 746 40,442 7,871
Non-Current
BANK LOANS 34,603 - - - (9,872) 24,731
Bonds payable 49,586 100,000 - - - 621 148,965
Total 95,713 92,429 (8,178) 8,825 38,818 227,607
Total 95.713 92.429 (8.178) 8.825 38.818 227.607
2019 Annual Report 181 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(A) CURRENT BANK LOANS:
AS OF DECEMBER 31, 2019
Taxpayer ID of Country of Taxpayer ID Country of Up to 90 Days Over 90 Days up to 1 Year Current Portion Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Type of Amortization Debtor Debtor of Creditor Creditor ThUS$ ThUS$ ThUS$ Nominal Effective
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itau Chile Chile USD Semi-annual 5,805 4,690 10,495 LB 6M+2.5% 4.55%
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 99.500.410-0 Banco Consorcio Chile USD Semi-annual - 34,791 34,791 LB 6M+3.5% 5.40%
Total 5,805 39,481 45,286
AS OF DECEMBER 31, 2018
Taxpayer ID of Country of Taxpayer ID Country of Up to 90 Days Over 90 Days up to 1 Year Current Portion Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Type of Amortization Debtor Debtor of Creditor Creditor ThUS$ ThUS$ ThUS$ Nominal Effective
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itau Chile Chile USD Semi-annual 5.768 5.000 10.768 LB 6M+2.5% 5,02%
Totales 5.768 5.000 10.768
(B) NON-CURRENT BANK LOANS:
AS OF DECEMBER 31, 2019
Taxpayer ID of Country of Taxpayer ID Country of Type of 1 to 2 Years 2 to 3 Years 3 to 5 Years Non-Current Portion Total Debt Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Debtor Debtor of Creditor Creditor Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Nominal Efectiva
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itaú Chile Chile USD Semi-annual 10,237 9,802 4,692 24,731 35,226 LB 6M+2.5% 4.55%
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 99.500.410-0 Banco Consorcio Chile USD Semi-annual - - - - 34,791 LB 6M+3.5% 5.40%
Total 10,237 9,802 4,692 24,731 70,017
AS OF DECEMBER 31, 2018
Taxpayer ID of Country of Taxpayer ID Country of Type of 1 to 2 Years 2 to 3 Years 3 to 5 Years Non-Current Portion Total Debt Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Debtor Debtor of Creditor Creditor Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Nominal Efectiva
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itaú Chile Chile USD Semi-annual 11,719 11,229 11,655 34,603 45,371 LB 6M+2.5% 5.02%
Total 11,719 11,229 11,655 34,603 45,371
Loans are presented net of origination and underwriting fees.
182 Compañía Sud Americana de Vapores S.A. (A) CURRENT BANK LOANS:
AS OF DECEMBER 31, 2019
Taxpayer ID of Country of Taxpayer ID Country of Up to 90 Days Over 90 Days up to 1 Year Current Portion Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Type of Amortization Debtor Debtor of Creditor Creditor ThUS$ ThUS$ ThUS$ Nominal Effective
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itau Chile Chile USD Semi-annual 5,805 4,690 10,495 LB 6M+2.5% 4.55%
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 99.500.410-0 Banco Consorcio Chile USD Semi-annual - 34,791 34,791 LB 6M+3.5% 5.40%
Total 5,805 39,481 45,286
AS OF DECEMBER 31, 2018
Taxpayer ID of Country of Taxpayer ID Country of Up to 90 Days Over 90 Days up to 1 Year Current Portion Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Type of Amortization Debtor Debtor of Creditor Creditor ThUS$ ThUS$ ThUS$ Nominal Effective
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itau Chile Chile USD Semi-annual 5.768 5.000 10.768 LB 6M+2.5% 5,02%
Totales 5.768 5.000 10.768
(B) NON-CURRENT BANK LOANS:
AS OF DECEMBER 31, 2019
Taxpayer ID of Country of Taxpayer ID Country of Type of 1 to 2 Years 2 to 3 Years 3 to 5 Years Non-Current Portion Total Debt Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Debtor Debtor of Creditor Creditor Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Nominal Efectiva
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itaú Chile Chile USD Semi-annual 10,237 9,802 4,692 24,731 35,226 LB 6M+2.5% 4.55%
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 99.500.410-0 Banco Consorcio Chile USD Semi-annual - - - - 34,791 LB 6M+3.5% 5.40%
Total 10,237 9,802 4,692 24,731 70,017
AS OF DECEMBER 31, 2018
Taxpayer ID of Country of Taxpayer ID Country of Type of 1 to 2 Years 2 to 3 Years 3 to 5 Years Non-Current Portion Total Debt Annual Interest Rate Name of Debtor Creditor Entity (Bank) Currency Debtor Debtor of Creditor Creditor Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ Nominal Efectiva
90.160.000-7 Compañía Sud Americana de Vapores S.A. Chile 76.645.030-K Banco Itaú Chile Chile USD Semi-annual 11,719 11,229 11,655 34,603 45,371 LB 6M+2.5% 5.02%
Total 11,719 11,229 11,655 34,603 45,371
Loans are presented net of origination and underwriting fees.
2019 Annual Report 183 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(C) BONDS PAYABLE:
AS OF DECEMBER 31, 2019
CURRENT
Nominal Amount Contractual Interest Up to 90 Days More than 90 Days Total Current Registry Number Series Currency Placed Type of Interest Rate Type of Amortization Issuing Company Country of Issuer Rate ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 955 C USD 100.000 5.35% Annual Semi Bullet Chile 754 - 754 Vapores S.A.
Totales 754 - 754
NON-CURRENT
Nominal Registry Contractual Type of Interest Type of More than 1 up to 2 More than 2 up to 3 More than 3 up to 5 More than 5 up to 10 Total Non-Current Series Currency Amount Placed Issuing Company Country of Issuer Number Interest Rate Rate Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 839 B USD 50,000 5.20% Annual Bullet Chile 49,749 - - - 49,749 Vapores S.A.
Compañía Sud Americana de 955 C USD 100,000 5.35% Annual Semi Bullet Chile - - - 99,216 99,216 Vapores S.A.
Total 49,749 - - 99,216 148,965
Bonds are presented net of origination and underwriting fees.
AS OF DECEMBER 31, 2018
NON-CURRENT
Registry Nominal Contractual Type of Interest Type of More than 1 up to 2 More than 2 up to 3 More than 3 up to 5 More than 5 up to 10 Total Non-Current Series Currency Issuing Company Country of Issuer Number Amount Placed Interest Rate Rate Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 839 B USD 50,000 5.20% Annual Bullet Chile 2,567 47,019 - - 49,586 Vapores S.A.
Total 2,567 47,019 - - 49,586
The financial obligations that place restrictions on management and require fulfillment of certain financial indicators (covenants) are described in Note 36 to these Consolidated Financial Statements.
184 Compañía Sud Americana de Vapores S.A. (C) BONDS PAYABLE:
AS OF DECEMBER 31, 2019
CURRENT
Nominal Amount Contractual Interest Up to 90 Days More than 90 Days Total Current Registry Number Series Currency Placed Type of Interest Rate Type of Amortization Issuing Company Country of Issuer Rate ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 955 C USD 100.000 5.35% Annual Semi Bullet Chile 754 - 754 Vapores S.A.
Totales 754 - 754
NON-CURRENT
Nominal Registry Contractual Type of Interest Type of More than 1 up to 2 More than 2 up to 3 More than 3 up to 5 More than 5 up to 10 Total Non-Current Series Currency Amount Placed Issuing Company Country of Issuer Number Interest Rate Rate Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 839 B USD 50,000 5.20% Annual Bullet Chile 49,749 - - - 49,749 Vapores S.A.
Compañía Sud Americana de 955 C USD 100,000 5.35% Annual Semi Bullet Chile - - - 99,216 99,216 Vapores S.A.
Total 49,749 - - 99,216 148,965
Bonds are presented net of origination and underwriting fees.
AS OF DECEMBER 31, 2018
NON-CURRENT
Registry Nominal Contractual Type of Interest Type of More than 1 up to 2 More than 2 up to 3 More than 3 up to 5 More than 5 up to 10 Total Non-Current Series Currency Issuing Company Country of Issuer Number Amount Placed Interest Rate Rate Amortization ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Compañía Sud Americana de 839 B USD 50,000 5.20% Annual Bullet Chile 2,567 47,019 - - 49,586 Vapores S.A.
Total 2,567 47,019 - - 49,586
The financial obligations that place restrictions on management and require fulfillment of certain financial indicators (covenants) are described in Note 36 to these Consolidated Financial Statements.
2019 Annual Report 185 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(D) FINANCE LEASE LIABILITIES
As of December 31, 2019 As of December 31, 2018 Finance Lease Liabilities Interest Rate ThUS$ ThUS$
Less than one year 4% 7,871 -
Total 7,871 - -
Right-of-use and finance lease liabilities recognized as of December 31, 2019, and depreciation and interest expense recognized for the same period correspond to both old finance leases contracts and the effect of adopting IFRS 16 since January 1, 2019.
NOTE 23 TRADE AND OTHER PAYABLES
TRADE PAYABLES ARE SUMMARIZED AS FOLLOWS:
Trade payables primarily represent amounts owed to regular service providers in the Group’s normal course of business, which are detailed as follows:
As of December 31, 2019 As of December 31, 2018 Current ThUS$ ThUS$
Operating costs 9,181 9,168
Consortia and other 189 50
Administrative costs 857 707
Dividends 34 37
Others 871 264
Total 11,132 10,226
186 Compañía Sud Americana de Vapores S.A. Up-to-date and past due trade payables as of December 31, 2019, are as follows:
UP-TO-DATE TRADE PAYABLES:
Amount by Payment Terms Total Type of Supplier Up to 30 Days 31-60 61-90 91-120 121-365 Over 366 Days ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Products 1,281 - - - - - 1,281
Services 8,554 122 229 - - 55 8,960
Total 9,835 122 229 - - 55 10,241
PAST-DUE TRADE PAYABLES:
Amounts by Days Past Due Total Type of Supplier Up to 30 Days 31-60 61-90 91-120 121-180 Over 181 Days ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Services 507 258 6 7 16 97 891
Total 507 258 6 7 16 97 891
Up-to-date and past-due trade payables as of December 31, 2018, are as follows:
UP-TO-DATE TRADE PAYABLES:
Amount by Payment Terms Type of Supplier Total Up to 30 Days 31-60 61-90 91-120 121-365 Over 366 Days ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Products 1,318 - - - - - 1,318
Services 7,944 188 516 11 - 36 8,695
Total 9,262 188 516 11 - 36 10,013
PAST-DUE TRADE PAYABLES:
Amount by Days Past Due Total Type of Supplier Up to 30 Days 31-60 61-90 91-120 121-180 Over 181 Days MUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Services 141 6 18 17 23 8 213
Total 141 6 18 17 23 8 213
2019 Annual Report 187 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
As of December 31, 2019, the average term for past-due supplier payments was 35 days (35 days as of December 31, 2018), and no suppliers were classified as non-current for those periods.
As of the reporting date, none of the payables detailed above accrue interest for the Company.
NOTE 24 PROVISIONS
Current and non-current provisions as of December 31, 2019, are detailed as follows:
Legal Claims Onerous Contracts Other Provisions Total Current ThUS$ ThUS$ ThUS$ ThUS$
Balance as of January 1, 2019 1,791 47 200 2,038
Additions during the period 129 4,764 - 4,893
Decreases during the period (1,415) (289) (78) (1,781)
Transfer from (to) non-current 935 - - 935 provisions
Closing balance of current 1,440 4,522 122 6,085 provisions
Legal Claims Total Non-Current ThUS$ ThUS$
Balance as of January 1, 2019 11,935 11,935
Decreases during the period - -
Transfer from (to) non-current provisions (935) (935)
Closing balance of non-current provisions 11,000 11,000
188 Compañía Sud Americana de Vapores S.A. Current and non-current provisions as of December 31, 2018, are detailed as follows:
Legal Claims Onerous Contracts Other Provisions Total Current ThUS$ ThUS$ ThUS$ ThUS$
Balance as of January 1, 2018 10,067 1,394 500 11,961
Additions during the period 1,491 47 - 1,538
Decreases during the period (10,365) (1,394) (300) (12,059)
Transfer from (to) non-current 598 - - 598 provisions
Closing balance of current 1,791 47 200 2,038 provisions
Legal Claims Total Non-Current ThUS$ ThUS$
Balance as of January 1, 2018 15,549 15,549
Decreases during the period (3,016) (3,016)
Transfer from (to) current provisions (598) (598)
Closing balance of non-current provisions 11,935 11,935
Provisions for legal claims correspond mainly to lawsuits and other legal proceedings, including legal costs and possible disbursements, to which the Company is exposed, including those stemming from investigations carried out by anti-monopoly authorities in the car carrier business and contingencies related to these cases, as indicated in Note 36 to the Consolidated Financial Statements.
Within onerous contracts, the Company provisions estimates of services to which it has committed (in-transit voyages or contracts) for which there is reasonable certainty that the revenue obtained will not cover the costs incurred at the end of the voyage and, therefore, the voyages or contracts are expected to end with operating losses. These provisions are expected to be used within the current period, based on the Company’s business cycle. Nevertheless, new provisions may be made in future periods.
All legal claims and contingencies related to the direct operations of the container shipping business are presently, following the merger with HLAG in 2014, the legal and financial responsibility of HLAG and its subsidiaries, including legal expenses and possible disbursements, even when CSAV is party to the claim. The Company has established provisions in the accounts legal claims and other provisions for other contingencies not related to the direct operation of this business where it believes disbursements to be reasonably likely.
As of the reporting date of these Consolidated Financial Statements, all amounts provisioned by the Company and its subsidiaries have been classified as either current or non-current based on the best estimate of the timing of their use or consumption.
2019 Annual Report 189 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 25 OTHER NON-FINANCIAL LIABILITIES
Other non-financial liabilities are detailed as follows:
As of December 31, 2019 As of December 31, 2018 Current ThUS$ ThUS$
Revenue from voyages in transit 3,997 5,617
Total current 3,997 5,617
As of December 31, 2019 As of December 31, 2018 Non-Current ThUS$ ThUS$
Other non-financial liabilities 13 160
Total non-current 13 160
Revenue from voyages in transit corresponds to income documented as of the reporting date for vessels in transit towards their destinations at that date (i.e. that have not yet completed the service, at which time the performance obligation is completed). These amounts are presented net of the respective expenses for each voyage in transit and transferred to net income or loss once the voyage has been completed, normally within the following 30 days.
Other non-current non-financial liabilities include guarantees received for real estate leases and the provision of other services that involve third-party use of the Company’s assets or equipment.
190 Compañía Sud Americana de Vapores S.A. NOTE 26 EMPLOYEE BENEFIT OBLIGATIONS
A) EMPLOYEE BENEFIT EXPENSES
For the year ended December 31, 2019 2018 ThUS$ ThUS$
Salaries and wages 5,976 4,263
Short-term employee benefits 187 190
Total employee benefits expense 6,163 4,453
B) EMPLOYEE BENEFIT PROVISIONS
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Vacations payable 144 131
Other benefits 1,384 1,425
Total employee benefit provisions 1,528 1,556
The Company had not made any employee benefit provisions classified as non-current as of December 31, 2019 and 2018.
2019 Annual Report 191 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 27 CLASSES OF FINANCIAL ASSETS AND LIABILITIES
The following table details the carrying amount and fair value of consolidated financial assets and liabilities:
Current Non-Current Fair Value
As of As of As of As of As of As of Description of Financial Assets Note December 31, December 31, December 31, December 31, December 31, December 31, 2019 2018 2019 2018 2019 2018
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cash and cash equivalents 7 53,619 24,339 - - 53,619 24,339
Other financial assets 8 - - 63 63 63 63
Trade and other receivables 9 16,234 17,654 - - 16,234 17,654
Receivables from related parties 10 74 67 - - 74 67
Total 69,927 42,060 63 63 69,990 42,123
Current Non-Current Fair Value
As of As of As of As of As of As of Description of Financial Liabilities Note December 31, December 31, December 31, December 31, December 31, December 31, 2019 2018 2019 2018 2019 2018
ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Bank loans 22 45,286 10,768 24,731 34,603 70,797 45,961
Bonds payable 22 754 - 148,965 49,586 151,254 50,500
Finance leases 22 7,871 - - - 7,871 -
Hedge liabilities 12 - 756 - - - 756
Trade and other payables 23 11,132 10,226 - - 11,132 10,226
Payables to related parties 10 30,301 104 - - 30,109 104
Total 95,344 21,854 173,696 84,189 271,163 107,547
192 Compañía Sud Americana de Vapores S.A. The average interest rates used to determine the fair value of financial liabilities as of December 31, 2019 and 2018, are summarized below:
As of December 31, 2019 As of December 31, 2018
Variable-rate financial liabilities Libor + 2.5% Libor + 2.5%
Fixed-rate financial liabilities 5.30% 5.20%
Other financial assets and liabilities are recorded at fair value or their carrying amount is a reasonable approximation of their fair value.
NOTE 28 EQUITY AND RESERVES
(A) CHANGES IN ISSUED CAPITAL
Subscribed and paid-in capital as of December 31, 2019 and 2018, amounts to US$3,493,509,703.09, divided into 36,796,876,188 shares.
(B) MOVEMENTS IN SHARES FOR 2019 AND 2018
As of December 31, 2019, the Company’s shares are detailed as follows:
Series Number of Subscribed Shares Number of Paid-in Shares Number of Voting Shares
Single 36,796,876,188 36,796,876,188 36,796,876,188
As of December 31, 2019 As of December 31, 2018
Number of Shares Common Stock Common Stock
Issued as of January 1 36,796,876,188 36,796,876,188
From capital increase
Shares canceled - -
Total at end of period 36,796,876,188 36,796,876,188
2019 Annual Report 193 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(C) TREASURY SHARES
The Company had no treasury stock as of December 31, 2019 and 2018.
(D) SHARE ISSUANCE COSTS
As of December 31, 2019 and 2018, the cumulative share issuance costs from the most recent capital increase in 2017 total ThUS$1,128, and are presented in the equity account other miscellaneous reserves.
(E) OTHER RESERVES
Other reserves are detailed as follows:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Translation adjustment reserve (13,385) (11,308)
Cash flow hedge reserve (7,406) (3,233)
Reserve for gains and losses on defined-benefit plans (16,628) 1,068
Other miscellaneous reserves (3,028) 3,579
Total reserves (40,447) (9,894)
EXPLANATION OF MOVEMENTS:
TRANSLATION ADJUSTMENT RESERVE
The translation reserve includes all foreign exchange differences that arise from translating to the Group’s functional currency the financial statements of Group companies with a different functional currency, based on the currency translation methodology defined in IAS 21. This applies to both the CSAV Group and the consolidated entities of its associates and joint ventures, such as HLAG.
194 Compañía Sud Americana de Vapores S.A. The balance and movement of the translation adjustment reserve are explained as follows:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Balance as of January 1 (11,308) (6,714)
Subsidiaries and other investments 6 103
Share of equity method associates and joint ventures (2,083) (4,697) (Note 15)
Closing balance (13,385) (11,308)
CASH FLOW HEDGE RESERVE
The hedge reserve includes the effective portion of the net accumulated effect on fair value of cash flow hedging instruments related to hedged transactions that have not yet taken place. Movements during the period are explained by accounting hedges realized during the period and new hedges entered into.
The balance and movement of this reserve are explained below:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Balance as of January 1 (3,233) 3,249
Deferred taxes on hedges 552 204
Increase (decrease) from hedge derivatives - (756)
Share of equity method associates and joint ventures (4,725) (5,930) (Note 15)
Closing balance (7,406) (3,233)
2019 Annual Report 195 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
RESERVE FOR GAINS AND LOSSES ON DEFINED EMPLOYEE BENEFIT PLANS
The reserve for actuarial gains on post-employment benefits consists of the variation in the actuarial values of provisions for defined- benefit plans.
The balance and movement of this reserve are explained below:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Balance as of January 1 1,068 (2,420)
Share of equity method associates and joint ventures (17,696) 3,488 (Note 15)
Closing balance (16,628) 1,068
OTHER MISCELLANEOUS RESERVES
The balance and movement of other miscellaneous reserves are explained as follows:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Balance as of January 1 3,579 1,493
Share issuance costs 79 (8)
Share of equity method associates and joint ventures (6,686) 2,122 (Note 15)
Other movements in reserves - (28)
Closing balance (3,028) 3,579
(F) DIVIDENDS AND RETAINED EARNINGS (ACCUMULATED DEFICIT)
The dividend policy described in Note 3.29 of these Consolidated Financial Statements establishes that net income to be distributed consists of 30% of net distributable income determined based on the instructions in CMF Ruling 1945.
196 Compañía Sud Americana de Vapores S.A. Distributable net profits are determined on the basis of “profit attributable to owners of the Company” presented in the Consolidated Statement of Income for each reporting period. This net income shall be adjusted, if necessary, to reflect all gains resulting from variations in the fair value of certain assets and liabilities that have not been realized as of period end. Thus, these gains will be incorporated into the determination of distributable net income in the period in which they are realized or accrued.
The Company has decided to maintain adjustments from first-time adoption of IFRS, included in retained earnings as of December 31, 2009, as non-distributable income. For the purpose of determining the balance of distributable retained earnings or accumulated losses, separate records are kept for these first-time adoption adjustments and they are not considered in determining that balance.
The following table details how distributable net income as of December 31, 2019 and 2018, is determined:
As of December 31, 2019 As of December 31, 2018 ThUS$ ThUS$
Initial distributable loss (1,493,897) (1,512,145)
Dividends Distributed
Net income attribuible to owners of the company 124,616 18,248
Adjustments to net income for the year for fair value - - assets and liabilities, unrealized
Adjustments for first-time adoption of IFRS, realized - -
Other adjustments to accumulated losses for the (79) - period
Distributable net loss (1,369,360) (1,493,897)
Accumulated deficit (1,228,876) (1,353,413)
As of December 31, 2019 and 2018, the Company has not recorded a mandatory minimum dividend provision because it has an accumulated deficit and, therefore, all profits have first been allocated to absorb these losses in accordance with article 78 of the Corporations Law.
2019 Annual Report 197 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 29 REVENUE, COST OF SALES AND ADMINISTRATIVE EXPENSES
Revenue and cost of sales are detailed in the following table:
For the year ended December 31,
Revenue 2019 2018 ThUS$ ThUS$
Revenue from transport services 90,485 89,792
Other income 2,470 1,644
Total operating income 92,955 91,436
For the year ended December 31,
Cost of sales 2019 2018 ThUS$ ThUS$
Cargo, intermodal and other related costs (11,954) (13,408)
Vessel charter, port, canal and other related (33,580) (53,159) expenses
Fuel expenses (17,231) (19,824)
Depreciation of right-of-use asset (30,348) -
Other costs (765) (796)
Total cost of sales (93,878) (87,187)
In accordance with IFRS 15, starting January 1, 2018, revenue and cost of sales for maritime services in-transit are no longer recognized in the Statement of Income based on the percentage of completion to date, but rather based on satisfaction of its performance obligations.
Should the Company determine that a voyage or committed contract will produce a loss, it shall be provisioned in cost of sales (onerous contract as described in Note 24 recording its income and expenses separately.
198 Compañía Sud Americana de Vapores S.A. Administrative expenses are detailed in the following table:
For the year ended December 31,
Administrative Expenses 2019 2018 ThUS$ ThUS$
Personnel payroll expenses (6,163) (4,453)
Advisory and other services (3,387) (2,387)
Communications and reporting expenses (317) (358)
Depreciation and amortization (144) (183)
Others (2,145) (3,165)
Total administrative expenses (12,156) (10,546)
As described in Note 6 (Segment Reporting) to this report, consolidated administrative expenses have been separated for the purposes of controlling and measuring the performance of each CSAV business segment. During the year ended December 31, 2019, total administrative expenses were ThUS$12,156—the container shipping business segment represents ThUS$4,791 and the other transport services business segment (vehicle transport and others) represents expenses of ThUS$7,365—accounting for 39% and 61% of total administrative expenses, respectively.
NOTE 30 OTHER INCOME AND OTHER GAINS (LOSSES)
(A) OTHER INCOME
For the year ended December 31, 2019, this account includes:
(i) Income related to leasing real estate of ThUS$1,098.
For the year ended December 31, 2018, this account includes:
(i) Income related to leasing real estate of ThUS$1,300.
(ii) Other income of ThUS$6.
2019 Annual Report 199 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(B) OTHER INCOME (LOSSES)
For the year ended December 31, 2019, this account includes: (i) Net gain on the sale of real estate classified as investment property, of ThUS$934. (ii) Other gains or losses from operating the other transport services segment resulting in a gain of ThUS$383.
For the year ended December 31, 2018, this account includes: (i) Net gain on the sale of a portion of the real estate assets classified as investment property (see Note 19) of ThUS$7,957. (ii) Other gains or losses from operating the other transport services segment resulting in a gain of ThUS$734.
NOTE 31 FINANCE INCOME AND COSTS
Finance income and costs are detailed as follows:
For the year ended December 31,
Finance income 2019 2018 ThUS$ ThUS$
Interest income from time deposits 592 660
Total finance income 592 660
For the year ended December 31,
Finance costs 2019 2018 ThUS$ ThUS$
Interest expense on financial liabilities (8,079) (5,099)
Interest expense on other financial instruments (1,257) -
Interest expense on leases (746) -
Other finance costs (823) (438)
Total finance costs (10,905) (5,537)
200 Compañía Sud Americana de Vapores S.A. NOTE 32 EXCHANGE DIFFERENCES
Exchange differences generated by items in foreign currency, other than differences generated by financial investments at fair value through profit and loss, were credited (charged) to net income or loss for the period according to the following table:
For the year ended December 31,
2019 2018 ThUS$ ThUS$
Cash and cash equivalents 6 (793)
Trade and other receivables, net (23) (771)
Current tax receivables 16 (19)
Total assets (1) (1,583)
Provisions 6 15
Trade and other payables (28) 385
Payables to related parties - (5)
Tax payables - -
Total liabilities (22) 395
Total exchange differences (23) (1,188)
2019 Annual Report 201 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 33 FOREIGN CURRENCY
As of December 31, 2019 As of December 31, 2018 Current Assets Currency ThUS$ ThUS$
CH$ 162 65
USD 52,343 23,161
EUR 126 92 Cash and cash equivalents BRL 1 1
CNY 896 993
OTHER 91 27
Other non-financial assets USD - -
Other non-financial assets USD 117 1,222
CH$ 202 228
USD 15,847 17,040
Trade and other receivables EUR 19 146
BRL 155 30
OTHER 11 210
CH$ 74 67 Receivables from related parties USD - -
Inventories USD 1,884 4,832
Current tax assets 356 261
Disposal groups classified as held for sale USD 306 784
CH$ 794 621
USD 70,497 47,039
EUR 145 238 Total current assets BRL 156 31
YUAN 896 993
OTHER 102 237
Total 72,590 49,159
202 Compañía Sud Americana de Vapores S.A. As of December 31, 2019 As of December 31, 2018 Non-Current Assets Currency ThUS$ ThUS$
Other financial assets USD 63 63
Other non-financial assets USD 1 1
Equity method investments USD 2,168,383 1,939,465
Goodwill USD 17 17
Property, plant and equipment USD 10,969 2,395
Investment property USD 10,870 12,198
Deferred tax assets USD 254,487 254,579
Total non-current assets USD 2,444,790 2,208,718
Total 2,444,790 2,208,718
CH$ 794 621
USD 2,515,287 2,255,757
EUR 145 238 TOTAL ASSETS BRL 156 31
YUAN 896 993
OTHER 102 237
Total 2,517,380 2,257,877
2019 Annual Report 203 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
As of December 31, 2019 As of December 31, 2018
90 Days to 1 90 Days to 1 Current Liabilities 90 Days Total 90 Days Total Currency Year Year ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Other financial liabilities USD 13,507 40,404 53,911 6,524 5,000 11,524
Trade and other payables CH$ 2,838 - 2,838 1,288 - 1,288
USD 7,682 - 7,682 8,226 - 8,226
EUR 384 - 384 561 - 561
BRL 163 - 163 31 - 31
OTHER 65 - 65 120 - 120
Payables to related parties CH$ 78 - 78 84 - 84
USD 30,223 - 30,223 20 - 20
Other provisions USD 6,085 - 6,085 2,038 - 2,038
Current tax liabilities USD 947 - 947 29 - 29
Employee benefit provisions CH$ 144 - 144 131 - 131
USD 1,384 - 1,384 1,425 - 1,425
Other non-financial liabilities USD 3,997 - 3,997 5,617 - 5,617
Disposal groups classified as held for sale USD 81 - 81 42 - 42
Total current liabilities CH$ 3,060 - 3,060 1,503 - 1,503
USD 63,906 40,404 104,310 23,921 5,000 28,921
EUR 384 - 384 561 - 561
BRL 163 - 163 31 - 31
OTHER 65 - 65 120 - 120
Total 67,578 40,404 107,982 26,136 5,000 31,136
204 Compañía Sud Americana de Vapores S.A. As of December 31, 2019 As of December 31, 2018 Pasivos No Corrientes 5 to 10 5 to 10 Moneda 1 to 3 Years 3 to 5 Years Years Total 1 to 3 Years 3 to 5 Years Years ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Other financial liabilities USD 69,788 4,692 99,216 173,696 72,534 11,655 84,189
Other provisions USD 11,000 - - 11,000 11,935 - 11,935
Deferred tax liabilities USD 502 - - 502 254 - 254
Other non-financial liabilities CH$ 13 - - 13 160 - 160
Total non-current liabilities USD 81,290 4,692 99,216 185,198 84,723 11,655 96,378
CH$ 13 - - 13 160 - 160
Total 81,303 4,692 99,216 185,211 84,883 11,655 96,538
CH$ 3,073 1,663
USD 289,508 125,299
TOTAL LIABILITIES EUR 384 561
BRL 163 31
OTHER 65 120
Total 293,193 127,674
2019 Annual Report 205 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 34 EARNINGS (LOSS) PER SHARE
Earnings (loss) per share as of December 31, 2019 and 2018, are determined as follows:
For the year ended December 31, 2019 2018 ThUS$ ThUS$
Net income (loss) from continuing operations attributable to owners of the 125,541 18,701 company
Loss from discontinued operations attributable to owners of the company (925) (453)
Net income (loss) attributable to owners of the company 124,616 18,248
Weighted average shares (number) 36,796,876,188 36,796,876,188
Earnings (loss) per share for continuing operations US$ 0.0034 00005
Earnings (loss) per share for discontinued operations US$ (0.0000) (0.0000)
Earnings (loss) per share US$ 0.0034 0.0005
For the year ended December 31, Number of Subscribed and Paid Shares 2019 2018
Issued as of January 1 36,796,876,188 36,796,876,188
Proceeds from capital issuance - -
Issued as of year end 36,796,876,188 36,796,876,188
Weighted average number of shares 36,796,876,188 36,796,876,188
206 Compañía Sud Americana de Vapores S.A. NOTE 35 DISCONTINUED OPERATIONS
As described in Note 2b) of this report, since the Company has carried out a disposal plan for its freight forwarder and logistics operations business unit operated by the Norgistics subsidiaries (hereinafter “Norgistics”), which was part of the other transport services segment defined in Note 6, it has decided to classify that business unit as held for sale and discontinued operations in the Consolidated Financial Statements as of December 31, 2019, in accordance with IFRS 5.
As described before, in accordance with the other provisions of IFRS 5, from now on the activities and transactions of the Norgistics business unit must be considered discontinued operations and be presented separately in the Consolidated Statement of Income. The discontinued unit’s results and net cash flows from operating, investing and financing activities must also be detailed separately in this note.
Section a) of this note details each of Norgistics’s asset and liability accounts to be disposed of or discontinued in the sale, which have been classified as held for sale, as explained in the preceding paragraph. Sections b) and c) of this note detail the results of Norgistics’s discontinued operations and a breakdown of its net cash flows, respectively, in comparison to the prior year.
As indicated in Note 14, on April 3, 2019, Norgistics Holding S.A. liquidated the subsidiary Norgistics Perú S.A.C.
On August 21, 2018, as stated in Note 14, the subsidiary Tollo Shipping Co. S.A. sold its interest in Norgistics (China) Ltd. [Hong Kong]. The remaining subsidiaries in this unit are not operating and are controlled by CSAV as of December 31, 2019. Therefore, their assets and liabilities are presented in the consolidated statement of financial position as held for sale, as indicated in the preceding paragraphs.
2019 Annual Report 207 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
(A) STATEMENT OF FINANCIAL POSITION FROM DISCONTINUED OPERATIONS
As of December 31, 2019 As of December 31, 2018 ASSETS AND LIABILITIES ThUS$ ThUS$
CURRENT ASSETS
Trade and other receivables 51 69
Current tax assets 163 174
Total current assets 214 243
NON-CURRENT ASSETS
Intangible assets other than goodwill 81 82
Investment property 11 14
Non-current tax assets - 445
Total non-current assets 92 541
TOTAL ASSETS 306 784
(Disposal groups classified as held for sale) 306 784
CURRENT LIABILITIES
Trade and other payables 75 36
Current tax liabilities 6 6
Total current liabilities 81 42
TOTAL LIABILITIES
(Disposal groups classified as held for sale) 81 42
208 Compañía Sud Americana de Vapores S.A. (B) STATEMENT OF INCOME FROM DISCONTINUED OPERATIONS
For the year ended December 31,
STATEMENT OF INCOME 2019 2018 ThUS$ ThUS$
Revenue - 25
Cost of sales - (26)
Gross margin - (1)
Other income - -
Administrative expenses (227) (499)
Other gains (losses) (235) 240
Net operating income (loss) (462) (260)
Finance income - 6
Exchange differences - -
Net income (loss) before taxes (462) (254)
Income tax expense (463) (199)
Net income (loss) for the year (925) (453)
(C) STATEMENT OF CASH FLOWS
For the year ended December 31, STATEMENT OF CASH FLOWS 2019 2018 ThUS$ ThUS$
Net cash flows provided by (used in) operating (132) (401) activities
Net cash flows provided by (used in) investing - - activities
Net cash flows provided by (used in) financing - - activities
Increase (decrease) in cash and cash equivalents (132) (401) before effect of exchange rate changes
Effect of exchange rate changes on cash and cash (14) 42 equivalents
Increase (decrease) in cash and cash equivalents (146) (359)
2019 Annual Report 209 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 36 CONTINGENCIES AND COMMITMENTS
(A) GUARANTEES GRANTED
(i) Bank guarantees: As of December 31, 2019, the Company has a bank guarantee granted by Scotiabank Chile (stand by letter of credit) for US$ 300,000, that expires on April 30, 2020, to guarantee compliance with U.S. local regulations for its vehicle transport operations.
(ii) Guarantee notes: There are minor guarantees, mainly associated with rental of premises in subsidiaries, whose disclosure is not necessary for the interpretation of these Consolidated Financial Statements.
(B) OTHER LEGAL CONTINGENCIES
The Company is party to some lawsuits and arbitration claims seeking compensation for damages and losses during cargo transport. Most of these potential losses are covered by insurance policies. For the portion not covered by insurance, including the cost of the respective deductibles, the Company has recorded sufficient provisions to cover the estimated amount of likely contingencies. The amount of the respective provisions is presented in Note 24 of this report within legal claims.
On February 21, 2018, the European Commission fined four international maritime shipping companies, including the Company, for practices that infringed the rules of its fair competition law between October 2006 and September 2012, in relation to its investigation into infringements of free competition rules in the vehicle transport (car carrier) business, during 2018 and through to December 31, 2019. Thanks to CSAV’s collaboration since the start of the investigation and its limited involvement in those practices, the Company was fined approximately MEUR 7,033 based on an agreement reached with that commission. This is 1.8% of the total fines imposed by the European regulatory (EUR 395 million).
These payments had no impact on the Company’s net income since a provision was estimated for such purposes in the Q1 2013 financial statements, which was disclosed to the market in May of that year.
On January 27, 2015, the Chilean National Economic Prosecutor’s Office (FNE) issued a summons against several shipping companies, including CSAV, for violating letter a) of article 3 of Decree Law 211 of 1973, regarding the Defense of Free Competition (“DL 211”), in the car carrier business (the “Summons”). As indicated in the Summons and set forth in article 39 bis of DL 211, because the Company is cooperating with the FNE’s investigation, it is exempt from fines relating to the practices referred to in the Summons. On April 24, 2019 the TDLC ruled on the case, and CSAV was declared exempt from the fine, because it was entitled to the leniency benefit and had demonstrated that it met the requirements for eligibility. The Court fined two of the shipping companies under investigation, partially
210 Compañía Sud Americana de Vapores S.A. upholding the FNE’s injunction. There are pending appeals filed by some participants in the case, and the final resolution lies with the Supreme Court.
Additionally, on March 13, 2017, the Peruvian National Institute in Defense of Competition and Protection of Intellectual Property (INDECOPI) initiated an administrative procedure against several shipping companies, including the Company, for alleged collusive practices in the maritime vehicle transport business. The Company is exempt from fines in relation to conduct described in the administrative procedure as a result of its cooperation in the INDECOPI investigation, so this process does not have any financial effect on CSAV’s results. On May 14, 2018, INDECOPI concluded these proceedings and exempted CSAV from any fines, in accordance with Peruvian law.
Some vehicle end buyers, distributors and freight forwarders or direct contract holders have filed a class action “on their own behalf and on behalf of those in a similar situation” before the US Federal Maritime Commission (CMF) based on investigations by the US Department of Justice (US DOJ), against a group of companies engaged in the car carrier business, including the Company and its former agency in New Jersey, for damages and losses suffered directly by contracting freight services or indirectly by buying imported cars in the United States. These class action suits were consolidated in the District Court of New Jersey. However, in late August 2015 the court ruled that they should be decided by the CMF, based on a motion filed by the Company. The U.S. Supreme Court dismissed the motions that were pending against this ruling. Fiat Chrysler automobiles NV, FCA US LLC, and FCA Italy SpA (together Fiat Chrysler) filed a demand before the CMF against a group of companies engaged in maritime vehicle transport, including the Company. The US Shipping Act of 1984 and the CMF’s regulations do not provide for resolving class action suits. Therefore, on May 7, 2018 the CMF rejected these proceedings. The parties reached an agreement with respect to the Fiat Chrysler claim, so the case has been dropped.
On April 17, 2019, the South African Fair Competition Commission filed an injunction against the Company for alleged anti-competitive behavior when negotiating a contract to transport vehicles from South Africa to Europe in 2011. The injunction is currently before the South African Competition Tribunal. Therefore, an estimate of any potential financial impact on CSAV cannot be made at this time.
On August 23, 2019, CSAV was served with a claim for damages by Daimler AG against the company and the shipping companies MOL, WWL, K-Line and NYK before the High Court of Justice, Commercial and Property Courts, England and Wales. The claim is based on alleged losses suffered by the plaintiff as a result of agreements or collusion between the defendants and others in connection with providing international roll-on/roll-off maritime transport services (referred to as ‘RoRo Services’) from February 1997 to at least September 6, 2012. On September 26, 2019, CSAV responded to the lawsuit, objecting to the period covered by the claim and other issues, and the case is currently in its discussion stage. Therefore, an estimate of any potential financial impact on CSAV cannot be made at this time.
2019 Annual Report 211 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
As of December 31, 2019, claims have been filed against the Company related to its container shipping business prior to the merger with HLAG. However, in accordance with the merger agreement between CSAV and HLAG, HLAG is now legally and financially liable for all legal contingencies related to the operations of the container shipping business, including legal expenses and possible disbursements, even when CSAV is party to the claim.
On April 29, 2019, the Company received Summons No. 43 from the Chilean Internal Revenue Service (SII) requesting that it clarify some items in its income tax returns for tax years 2016 and 2017 for expenses related to payments of fines, indemnities and/or penalties made abroad related to the car carrier case. On June 28, 2019, the Company responded, within legal deadlines, to that summons and provided all supporting documentation requested by tax authorities. Subsequently, it provided additional information on August 13, 2019.
However, the SII determined the fines paid abroad during commercial years 2015 and 2016 to be rejected expenses. As a result, on August 30, 2019, the Company received Tax Assessments Nos. 95 to 98 for a total of ThUS$2,670 plus interest and fines as of that date, giving a grand total of ThUS$4,594.
On October 16, 2019, the Company filed a Voluntary Administrative Request for Reconsideration (RAV) against Tax Assessments Nos. 95 to 98 from August 2019, which was resolved by the SII as described in Note 39 b) of these Consolidated Financial Statements.
(C) GUARANTEES FOR FINANCIAL COMMITMENTS
As of December 31, 2019, the Company has no guarantees or liens on its assets to secure its financial obligations.
212 Compañía Sud Americana de Vapores S.A. (D) OPERATING RESTRICTIONS
CSAV’s financial obligations place restrictions on management or on the fulfillment of certain financial indicators (covenants), as described in the following table:
Indicators 31-12-19 31-12-18
Total Liabilities / Total Equity < 1.30 0.13 0.06
Total Liabilities [ThUSD] 293,193 127,674
Total Equity [ThUSD] 2,224,187 2,130,203
Unencumbered assets / Financial debt unsecured by issuer >= 1.30 10.07 23.59
Total Assets [ThUSD] 2,517,380 2,257,877
Encumbered assets [ThUSD] (*) 0 -
Unencumbered assets [ThUSD] 2,517,380 2,257,877
Other current financial liabilities [ThUSD] 53,911 11,524
Other non-current financial liabilities [ThUSD] 173,696 84,189
Lease liabilities (IFRS 16) [ThUSD] (*) (7,871) -
/a/ Other current and non-current financial liabilities, net of IFRS 16 [ThUSD] 219,736 95,713
Current and non-current trade and other payables [ThUSD] 11,132 10,226
Non-interest accruing trade and other payables [ThUSD] (*) (11,132) (10,226)
/b/ Interest accruing trade payables [ThUSD] 0 -
Current and non-current payables to related parties [ThUSD] 30,301 104
Non-interest accruing current and non-current payables to related parties [ThUSD] (*) (107) (104)
/c/ Interest-accruing payables to related parties [ThUSD] 30,194 -
Financial debt (/a/+/b/+/c/) [ThUSD] 249,930 95,713
Financial debt secured by issuer [ThUSD] 0 -
Financial debt unsecured by issuer [ThUSD] 249,930 95,713
Total Assets >= USD 1,614 million 2,517,380 2,257,877
Total Assets [ThUSD] 2,517,380 2,257,877
(*) Adjustments based on Notes 10, 22, 23 and 36 of these Consolidated Financial Statements As of December 31, 2019, the Company has complied with all of the above financial restrictions.
2019 Annual Report 213 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Notes to the Consolidated Financial Statements As of and for the year ended December 31, 2019
NOTE 37 ENVIRONMENTAL ISSUES
The Company has a Quality and Environmental Policy, which has resulted in the implementation of diverse initiatives involving energy efficiency in operations and compliance with international environmental protection regulations. To monitor and control its policies and programs, the Company uses an internal integrated quality management and environmental system, which is externally audited by an international certifier based on ISO 9001:2008 and ISO 14001:2004 standards.
NOTE 38 SANCTIONS
During the years ended December 31, 2019, and 2018, neither the Company nor its subsidiaries, directors and managers have been sanctioned by the CMF (former SVS). The Company and its subsidiaries have also not received any significant sanctions from any other regulatory bodies or jurisdictions, other than those included in Note 36 to these Consolidated Financial Statements.
NOTE 39 EVENTS AFTER THE REPORTING PERIOD
Between the closing date and issuance of these Consolidated Financial Statements, the following relevant events occurred and are presented as subsequent events:
(a) On January 13, 2020, the Company concluded the process to purchase shares in Hapag-Lloyd AG (“HLAG”) through CSAV’s wholly owned German subsidiary, CSAV Germany Container Holding GmbH (“CG Hold Co”). This purchase is part of the plan to obtain 30% ownership of HLAG.
During 2019, it acquired 3,390,141 shares equivalent to 1.93% and in January 2020, it purchased an additional 3,890,899 shares equivalent to 2.21%, giving it a total of 52,728,038 shares, or an interest of nearly 30% in Hapag-Lloyd AG. This last purchase involved an investment of around ThUS$330,000 that was financed mainly with a bridge loan CSAV secured from its controller, Quiñenco S.A.
As to the financial effect of these transactions, for the 2019 acquisition the Company calculated badwill of ThUS$34,567 based on the purchase price allocation report (PPA) prepared for HLAG. For the acquisition in January 2020, it estimated goodwill of ThUS$151,218 based on the most recent PPA. That amount will be adjusted once the PPA for this purchase is available.
(b) On January 22, 2020, the Chilean Internal Revenue Service (SII) issued Exempt Resolution No. 110539/2020 with its decision on the Voluntary Request for Administrative Reconsideration filed by CSAV against Tax Assessments Nos. 95 to 98 received in August 2019. As a result of that reconsideration, the amount payable was reduced to ThUS$1,119, thus fully resolving this matter.
214 Compañía Sud Americana de Vapores S.A. (c) On January 23, 2020, CSAV announced the orderly closure of its vehicle transport business and the discontinuation of services. The decision was made by CSAV to focus all economic and management efforts on developing its main asset—its interest in the German shipping company Hapag‐Lloyd AG, where CSAV is currently the largest shareholder and party to a controlling agreement with the city of Hamburg and Kühne Maritime. The vehicle transport business has historically represented less than 1% of CSAV’s total assets.
(d) On February 26, 2020, CSAV signed a sale promise agreement for real estate classified as investment property in these Consolidated Financial Statements. The agreement is for UF 45,000 plus VAT and the deal should be completed within 90 days.
(e) On March 10, 2020, the Board of Hapag-Lloyd AG informed the market of a decision made at the annual general meeting (AGM) to distribute a dividend of EUR 1.10 per share, equivalent to EUR 193.3 million. The amount payable to CSAV Germany Container Holding GmbH is estimated at EUR 58 million, which is equivalent to approximately US$66.5 million at the Euro/dollar exchange rate in effect on the date of the announcement. The estimated date of payment for the dividend is still unknown but will be after the aforementioned AGM scheduled for June 5, 2020.
Between January 1, 2020 and the date of issuance of these Consolidated Financial Statements, the Company’s management is not aware of any other subsequent events that significantly affect the financial position and/or comprehensive results of Compañía Sud Americana de Vapores S.A. and subsidiaries as of December 31, 2019.
2019 Annual Report 215 Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
216 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 217 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
1. ANALYSIS OF FINANCIAL POSITION
A) STATEMENT OF FINANCIAL POSITION
The following table details the Company’s main asset and liability accounts as of each period end:
As of December 31, 2019 As of December 31, 2018 Change ASSETS MMUS$ MMUS$ MMUS$
Current assets 72.6 49.2 23.4
Non-current assets 2,444.8 2,208.7 236.1
Total assets 2,517.4 2,257.9 259.5
As of December 31, 2019 As of December 31, 2018 Change LIABILITIES MMUS$ MMUS$ MMUS$
Total current liabilities 108.0 31.1 76.9
Total non-current liabilities 185.2 96.6 88.6
Equity attributable to owners of the 2,224.2 2,130.2 94.0 company
Total liabilities and equity 2,517.4 2,257.9 259.5
For a better understanding of the figures in this report, bear in mind that in 2017 the Company decided to stop operating its logistics and freight forwarder business, as explained in Note 2 b) and Note 35 of these Consolidated Financial Statements. As a result, in the financial statements as of December 31, 2019 and December 31, 2018, the assets and liabilities of the subsidiaries engaged in this business have been reclassified as assets and liabilities held for sale. Results from the logistics and freight forwarder business for the years ended December 31, 2019 and 2018, are presented as discontinued operations in accordance with IFRS 5.
In addition, as explained in Note 39 of the Consolidated Financial Statements as of December 31, 2019, in January 2020 CSAV decided to close its vehicle transport business and discontinue those activities. The decision was made to focus all economic and management efforts on developing its main asset—its interest in the German shipping company Hapag-Lloyd AG (HLAG). Closing these operations does not materially impact the assets, liabilities or income statement accounts in the Consolidated Financial Statements as of December 31, 2019. They will be reclassified as discontinued activities for the financial statements as of March 31, 2020, and beyond.
218 Compañía Sud Americana de Vapores S.A. Moving on to analyze the main financial statement variations, as of December 31, 2019, total assets were up MMUS$ 259.5 with respect to December 31, 2018. This variation is explained by an increase of MMUS$ 236.1 in non-current assets and an increase of MMUS$ 23.4 in current assets.
The increase of MMUS$ 234.1 in non-current assets is explained by an increase of MMUS$ 228.9 in equity method investments and an increase of MMUS$ 8.6 in property, plant and equipment, both of which were partially offset by a decrease in investment property of MMUS$ 1.3 and a decrease in deferred tax assets of MMUS$ 0.1. These variations are analyzed in detail below.
The variation in equity method investments during the year 2019 is related to CSAV’s investment in the German shipping line HLAG. During that period, CSAV increased its interest in HLAG by a total of 1.93% with respect to the 25.86% stake it held as of December 31, 2018, by first increasing to 26.05% as of March 31, 2019, then 27.48% as of June 30, 2019, and finally to 27.79% as of September 30, 2019. It maintained this last percentage until December 31, 2019.
These acquisitions were materialized through share purchases on German stock exchanges, requiring an investment of MMUS$ 120.3. They were financed with a bridge loan of MMUS$ 100 (MMUS$ 70 from Banco Consorcio and MMUS$ 30 from Compañía de Seguros de Vida Consorcio) obtained during the second quarter of 2019 and a bridge loan from its parent company Quiñenco for MMUS$ 30.0 obtained during the third quarter of 2019. The bridge loan of MMUS$ 100 mentioned above was paid during the third quarter with funds obtained from issuing and placing new C series bonds for the same amount, charged to the MMUS$ 150 bond line registered with the Financial Market Commission.
As indicated in Note 39 of the Consolidated Financial Statements as of December 31, 2019, and as reported as an Essential Event by the Company on January 13, 2020, during the month of January 2020, CSAV acquired additional HLAG shares representing 2.21% of the German shipping company, thus giving it total ownership of almost 30%. Including this most recent purchase and those made during 2019, the Company has invested a total of approximately MMUS$ 450 to acquire shares of HLAG. Of these MMUS$ 450, MMUS$ 100 were financed by placing C series bonds, as indicated above, while the remaining MMUS$ 350 were financed with short-term debt from banks and its parent company Quiñenco, including the MMUS$ 30 loan mentioned above. The Company expects to pay off the entire MMUS$ 350 in debt through a capital increase for the same amount, which was announced in the Essential Event indicated above, reported on January 13, 2020.
In accordance with provisions in IAS 28 applicable to the process of acquiring an additional interest in HLAG that CSAV carried out in 2019, the Company had to directly recognize the badwill from acquiring these shares at an average price below the fair value of the assets as a gain in net income, based on the purchase price allocation (PPA) analysis for HLAG, commissioned by CSAV from PricewaterhouseCoopers in 2019.
2019 Annual Report 219 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
Therefore, the variation in equity method investments is explained as follows: (i) an increase related to the income recorded within share of income (loss) of equity method associates and joint ventures in the income statement of MMUS$ 147.8, which is comprised of income of MMUS$ 110.6 from CSAV’s direct share of HLAG’s results, based on the ownership interest for each quarter, a gain of MMUS$ 2.6 from the effect of PPA amortization on HLAG’s results, and a gain of MMUS$ 34.6 related to income recorded for the additional acquisition of HLAG shares, explained above; (ii) an increase in capital movements of MMUS$ 120.3 due to the purchase cost of the additional interest in HLAG, as mentioned above; (iii) a decrease of MMUS$ 8.0 for dividends distributed by HLAG to its shareholders during the second quarter of 2019; (iv) a decrease of MMUS$ 24.5 for CSAV’s share of HLAG’s other comprehensive income during the period; and (v) a decrease of MMUS$ 6.7 for CSAV’s share of other changes in HLAG’s equity. The table below summarizes these movements.
Detail of Movements in CSAV’s Investment in HLAG
MMUS$
Balance as of January 1, 2019 1,939.5
Total Income Recognized 147.8
Share of HLAG's Net Income 110.6
Effect of PPA on Results 2.6
Gain (Loss) on Acquisition of Interest 34.6
Capital Movements 120.3
Dividends received (8.0)
Share of Other Comprehensive Income (24.5)
Other Changes in Equity (6.7)
Movements during the period 226.9
Balance as of December 31, 2019 2,168.4
More information on the accounting balance of CSAV’s investment in HLAG and all movements during the years ended December 31, 2019 and 2018, can be found in Note 15 of the Consolidated Financial Statements .
220 Compañía Sud Americana de Vapores S.A. The increase in property, plant and equipment of MMUS$ 8.6 is explained mainly by first-time adoption of IFRS 16 “Leases” starting January 1, 2019. This standard requires lease agreements currently classified as operational to have a similar accounting treatment as finance leases. In general, this means recognizing a right-of-use asset for property under an operating lease and a liability equivalent to the present value of payments associated with the agreement.
The Company has determined that lease commitments that must be analyzed within the scope of IFRS 16 are mainly those related to vessel and slot charters. The effects of adopting this standard as of December 31, 2019, are detailed as follows:
Impact per account of adopting IFRS 16 as of December 31, 2019 MMUS$
Decrease in current non-financial assets for prepayments (0.7)
Increase in property, plant and equipment for right-of-use assets 8.6
Increase in current financial liabilities for lease liabilities 7.9
The decrease in investment property of MMUS$ 1.3 is related to the sale of offices not currently being used for operations completed during the second quarter of 2019.
The increase of MMUS$ 0.1 in deferred tax assets can be explained mainly by net income for the year, partially offset by the net effect on taxes of the existing financing structure in euros that the CSAV Group used to invest in HLAG. During 2019, the net effect of the variation in the euro/dollar exchange rate and interest on that financing generated tax profits for CSAV in Chile, thus resulting in a negative charge in income tax expense and a decrease in deferred tax assets for the period, which was partially offset by the effect on taxes of net income for the year.
Moving on to the main variations in current assets, the increase of MMUS$ 23.4 in current assets is attributable to an increase in cash and cash equivalents of MMUS$ 29.3, which is explained in more detail below in letter d) Analysis of Cash Flows Statement, and to a larger extent, to the funds obtained from the bridge financing from Banco Consorcio of MMUS$ 35.0 during the fourth quarter of 2019, for the aforementioned acquisition of an additional stake in HLAG in January 2020, and an increase of MMUS$ 0.1 in current tax assets.
The above was partially offset by a decrease in fuel inventories of MMUS$ 2.9, due to a reduction in tons used because of smaller number of ships operating despite the higher average price; by a reduction in trade and other receivables of MMUS$ 1.5 as a result of lower sales and reduced transported volumes in the vehicle transport business as of year-end 2019 in comparison to year-end 2018; by a decrease of MMUS$ 1.1 in other non-financial assets, explained primarily by a reduction in prepayments for vessel charters related to
2019 Annual Report 221 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
adopting IFRS 16, as explained above; and by a reduction of MMUS$ 0.5 in groups of assets held for sale related to efforts to close the logistics and freight forwarder business.
As of December 31, 2019, total liabilities increased by MMUS$ 165.5 compared to December 31, 2018. This variation is explained by an increase of MMUS$ 88.6 in non-current liabilities and an increase of MMUS$ 76.9 in current liabilities.
The increase in non-current liabilities of MMUS$ 88.6 is explained mainly by the increase in other non-current liabilities of MMUS$ 89.5, related essentially to the bond of MMUS$ 100 issued by the Company during the third quarter to finance the acquisitions of HLAG shares in 2019, less MMUS$ 10.0 in pay commitments for the outstanding loan from Banco Itaú reclassified from long to short-term due to maturity. This loan has an outstanding balance of MMUS$ 35 as of December 31, 2019.
The increase of MMUS$ 76.9 in current liabilities can be explained mostly by the increase in other financial liabilities of MMUS$ 42.4, related mainly to the bridge loan from Banco Consorcio of MMUS$ 35 and operating lease commitments recognized as required by IFRS 16, both mentioned previously, and also by the increase in payables to related parties of MMUS$ 30.1, related to the loan received from the parent company Quiñenco of MMUS$ 30.0, also described above.
Along the same lines, there were also increases in other provisions of MMUS$ 4.1, related mainly to onerous contracts for operations over the next few months; in trade and other payables of MMUS$ 1.0 related to the vehicle transport business; in current tax liabilities of MMUS$ 0.9 and in groups of liabilities held for sale of MMUS$ 0.1.
The aforementioned increases are partially offset by the reduction in other non-financial liabilities of MMUS$ 1.6, related mainly to income from voyages in transit in the vehicle transport business and the decrease in employee benefit provisions of MMUS$ 0.1.
As of December 31, 2019, equity increased by MMUS$ 94.0 compared to December 31, 2018. This change is explained by the net income of MMUS$ 124.5 recorded for the year ended December 31, 2019, partially offset by a decrease in other reserves of MMUS$ 30.5, explained fully by CSAV’s share of HLAG’s other comprehensive income and other equity reserves. More information on these changes in equity can be found in Note 28 f) of the Consolidated Financial Statements.
222 Compañía Sud Americana de Vapores S.A. B) STATEMENT OF INCOME
As of December 31, 2019 As of December 31, 2018 Change
MMUS$ MMUS$ MMUS$
Revenue 93.0 91.4 1.6
Cost of sales (93.9) (87.2) (6.7)
Gross margin (0.9) 4.2 (5.1)
Administrative expenses (12.2) (10.5) (1.7)
Other operating income 2.4 10.0 (7.6)
Net operating income (10.7) 3.7 (14.4)
EBITDA (without associates)* 19.8 3.9 15.9
Finance costs, net (10.3) (4.9) (5.4)
Share of income (loss) of equity method associates 147.8 14.0 133.8
Exchange differences and other non-operating expenses - (1.2) 1.2
Income tax benefit (expense) (1.3) 7.1 (8.4)
Net income after tax from continuing operations 125.5 18.7 106.8
Loss after tax from discontinued operations (0.9) (0.5) (0.4)
Net income for the period 124.6 18.2 106.4
*EBITDA is operating income (loss) plus depreciation and amortization. For the year ended December 31, 2019, it includes depreciation for right-of-use assets of MMUS$ 30.3 related to adopting IFRS 16.
Net income attributable to the owners of the company of MMUS$ 124.6 for the year ended December 31, 2019, represents an improvement of MMUS$ 106.4 over the same period in 2018.
The Company reported an operating loss of MMUS$ 10.7 for the year ended December 31, 2019, which represents a decrease of MMUS$ 14,4 with respect to the same period last year, explained in part by the negative gross margin of MMUS$ 0.9, marking a drop of MMUS$ 5.1 from last year, related to reduced results from CSAV’s direct operations in the vehicle transport business, which was negatively affected by increased operating costs stemming from higher vessel charter prices with respect to the same period last year, and a smaller volume of vehicles transported, in addition to an increase in provisions for onerous contracts for voyages over the next few months.
2019 Annual Report 223 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
CSAV’s Income Statement shows revenue of MMUS$ 93.0 for 2019, which represents an increase of MMUS$ 1.6 with respect to the same period in 2018, explained by the Company’s shift in operating structure due to lower volumes of vehicles transported, which resulted in higher income from vessel charters and slot sales to third parties on operated vessels with respect to 2018, which helped offset the costs from diminished vessel usage. Excluding this effect, in 2019 there was a decrease in freight income as a result of lower demand. A portion of this income was impacted by indexation to variations in fuel prices, but the effect was not significant with fuel prices rising a mere 1% during the year.
Cost of sales reached MMUS$ 93.9 for the year ended December 31, 2019, up MMUS$ 6.7 from last year, explained by increases in fleet costs related mostly to vessel charters, and the rise in provisions for onerous contracts associated with voyages over the next few months.
Administrative expenses totaled MMUS$ 12.2 in 2019, reflecting an increase of MMUS$ 1.7 over the same period last year, which also includes costs related to closing the vehicle transport service.
Other operating income reached MMUS$ 2.4, down MMUS$ 7.6 from the same period last year, related mainly to the sale of offices not used for operations and classified as investment property within the Company’s assets, as mentioned above.
In share of income (loss) from equity method associates and joint ventures, CSAV recognized income of MMUS$ 147.8 for the year ended December 31, 2019, which is MMUS$ 133.8 greater than the figure recorded in 2018. This improvement is explained mainly by improved results from CSAV’s direct interest in HLAG of MMUS$ 99.2 with respect to the same period in 2018, by greater badwill recorded in 2019 compared to 2018 of MMUS$ 33.6, as indicated in the preceding section, and greater PPA amortization for the investment in HLAG of MMUS$ 1.0 with respect to the same period last year.
Resuming the analysis of the results of the investment in HLAG, according to the accounting method that should be used for joint ventures under IFRS, each quarter CSAV reflects in net income or loss its direct share of the net income or loss attributable to the owners of HLAG and also the effect on profit or loss of the amortization of PPAs, determined as of the closing of the business combination between CSAV and HLAG in December 2014 and, in addition, incremental acquisitions of HLAG shares after closing the business combination with UASC in 2017 and throughout the year 2019 (in accordance with IFRS 3 and IAS 28).
224 Compañía Sud Americana de Vapores S.A. For the year ended December 31, 2019, the account equity method investments is comprised of net income attributable to the owners of the company reported by HLAG each quarter, which totaled MMUS$ 104.0, MMUS$ 51.6, MMUS$ 166.5 and MMUS$ 83.1 for the first through fourth quarters, respectively, and were then multiplied by the proportional interest as of each quarter end of 26.05%, 27.48%, 27.79% and 27.79%, respectively.
The Company must also consider the quarterly PPA amortization for CSAV’s original purchase of HLAG shares in 2014, the investments made after the HLAG-UASC merger in 2017 and those made in 2019, which amount to a gain of MMUS$ 4.1, a loss of MMUS$ 4.9 and a loss of MMUS$ 8.0, respectively, which must then be multiplied by the proportional interest for these processes as of each quarter end of 22.58%, 3.28% and 0.19% for the first quarter of 2019 (totaling 26.05% as of March 31, 2019), of 22.58%, 3.28% and 1.62% for the second quarter (totaling 27.48% as of June 30, 2019) and 22.58%, 3.28% and 1.93% for the third and fourth quarters (totaling 27.79% as of September 30 and December 31, 2019).
Thus, CSAV recorded income of MMUS$ 110.6 for its direct share of HLAG’s results and income of MMUS$ 2.6 for its share of the PPA amortization, recording total income of MMUS$ 113.2 for both concepts. To this, we must add the gain generated by badwill as of December 31, 2019, of MMUS$ 34.6, mentioned above, obtaining total income of MMUS$ 147.8.
For the year ended December 31, 2019, CSAV recognized an income tax expense of MMUS$ 1.3, representing an increase of MMUS$ 8.4 over the same period in 2018. This variation is explained mainly by a larger deferred tax expense in 2019 because of the impact of the depreciating euro on the CSAV Group’s financing structure for its investment in HLAG, as detailed in letter a) above.
Therefore, the Company’s net income attributable to the owners of the company of MMUS$ 124.6 for the year ended December 31, 2019, represents an improvement of MMUS$ 106.4 over the same period in 2018.
2019 Annual Report 225 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
C) OPERATING RESULTS BY SEGMENT
CSAV reports two business segments as of December 31, 2019: Container Shipping and Other Transport Services. Each segment is described briefly below:
• Container Shipping: These are the container shipping services operated by HLAG, represented by the investment in that joint venture, plus certain assets and liabilities related to the container shipping business that are controlled by CSAV (deferred tax assets, financial liabilities to finance the investment and others).
• Other Transport Services: These are the vehicle transport (car carrier) services operated directly by CSAV, plus certain real estate assets held by the Company. In January 2020, CSAV decided to close its vehicle transport business, as indicated above in this report. Furthermore, as a result of the Company’s decision to stop operating its logistics and freight forwarder business during the fourth quarter of 2017, from that point on the results of that business unit are presented as discontinued operations in accordance with IFRS 5.
The following chart shows the income statement by segment for the year ended December 31, 2019 (more details in Note 6 to the Consolidated Financial Statements):
As of December 31, 2019 As of December 31, 2018 Change Container Shipping MMUS$ MMUS$ MMUS$
Administrative expenses (4.8) (4.2) (0.6)
Net operating loss (4.8) (4.2) (0.6)
Finance costs, net (10.1) (5.5) (4.6)
Share of income (loss) of equity method 147.8 14.0 133.8 associates
Exchange differences and other non- - (0.7) 0.7 operating expenses
Income tax benefit (expense) (1.6) 5.7 (7.3)
Net income attributable to owners of 131.3 9.3 122.0 the company
226 Compañía Sud Americana de Vapores S.A. The container shipping segment reported net income of MMUS$ 131.3 for the year ended December 31, 2019, representing an increase of MMUS$ 122.0 with respect to the same period last year, explained mainly by an improved result from its share of HLAG’s net income of MMUS$ 133.8, detailed above, and a smaller loss on exchange differences of MMUS$ 0.7 with respect to 2018. This was partially offset by a larger tax expense of MMUS$ 7.3 related mainly to the financing structure for the investment in HLAG, as explained in above sections, to an increase in net finance costs of MMUS$ 4.6 due to interest on the additional financing obtained in 2019 and an increase in administrative expenses of MMUS$ 0.6.
As of December 31, 2019 As of December 31, 2018 Change Other Transport Services MMUS$ MMUS$ MMUS$
Revenue 93.0 91.4 1.6
Cost of sales (93.9) (87.2) (6.7)
Gross margin (0.9) 4.2 (5.1)
Administrative expenses (7.4) (6.3) (1.1)
Other operating income 2.4 10.0 (7.6)
Net operating income (loss) (5.9) 7.9 (13.8)
Finance costs, net (0.2) 0.6 (0.8)
Exchange differences and other non- - (0.5) 0.5 operating expenses
Income tax benefit 0.3 1.4 (1.1)
Net income (loss) after tax from (5.8) 9.4 (15.2) continuing operations
Loss after tax from discontinued (0.9) (0.5) (0.4) operations
Net income (loss) attributable to (6.7) 8.9 (15.6) owners of the company
The other transport services segment reported a loss of MMUS$ 6.7 for the year ended December 31, 2019, which represents a decrease of MMUS$ 15.6 with respect to the same period last year, explained mainly by a smaller gross margin of MMUS$ 5.1, and reduced sales of real estate classified as investment property in 2019 compared to 2018. Both variations are explained in section b) above.
2019 Annual Report 227 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
D) ANALYSIS OF STATEMENT OF CASH FLOWS
The main variations in cash flows are explained as follows.
For the year ended December For the year ended December Change 31, 2019 31, 2018 MMUS$ MMUS$ MMUS$
Cash flows from operating activities 27.4 (26.0) 53.4
Proceeds from operating activities 92.4 100.1 (7.7)
Payments from operating activities (65.0) (125.6) 60.6
Income taxes and other - (0.5) 0.5
Cash flows from investing activities (109.6) 13.7 (123.3)
Payments to acquire interests in joint ventures (120.3) (28.5) (91.8)
Dividends received 8.0 30.2 (22.2)
Proceeds from sale of property, plant and equipment 2.1 10.8 (8.7)
Cash flows arising from the loss of control of subsidiaries - 0.5 (0.5)
Interest received 0.6 0.7 (0.1)
Cash flows from financing activities 111.5 (5.1) 116.6
Proceeds from long-term loans 134.4 134.4
Short-term loans obtained and paid (0.2) 0.2
Loans obtained from and paid to related parties, net 30.0 - 30.0
Loan payments, net (10.0) - (10.0)
Interest and other payments (10.3) (4.9) (5.4)
Repayment of finance lease liabilities (32.6) - (32.6)
Effect of change in exchange rate - (0.7) 0.7
Increase (decrease) in cash and cash equivalents 29.3 (18.1) 47.4
The net change in cash and cash equivalents between December 31, 2018 and December 31, 2019, was a positive MMUS$ 29.3, which represents a net improvement of MMUS$ 47.4 over the same period in 2018.
228 Compañía Sud Americana de Vapores S.A. Operating activities generated positive net cash flows of MMUS$ 27.4 for the year ended December 31, 2019, which includes reclassifications of MMUS$ 32.6 in payments on vessel operating leases presented under financing cash flows as financial lease payments as of January 1, 2019, as a result of adopting IFRS 16 “Leases”. Reversing this reclassification would result in a negative operating cash flow for the year of MMUS$ 5.2, compared to a negative cash flow of MMUS$ 26.0 recognized during the same period last year, which represents a positive variation of MMUS$ 20.8. This variation is explained mainly by increased payments of non- recurring provisioned obligations in 2018 of MMUS$ 13.8 related to the conclusion of the penalty processes conducted by anti-monopoly authorities in the vehicle transport business.
Investing activities generated negative net cash flows of MMUS$ 109.6 for the year ended December 31, 2019, marking an increase of MMUS$ 123.3 over the same period last year, which is explained mainly by an increase in additional investments in HLAG of MMUS$ 91.8, as described in preceding sections, decreased cash flows from dividends distributed by HLAG of MMUS$ 22.2, fewer proceeds from the sale of real estate classified as investment property of MMUS$ 8.7, fewer proceeds from loss of control in subsidiaries related to cash received in the first quarter of 2018 of MMUS$ 0.5 on the balance of the sale of the subsidiary Norgistics Chile S.A, and reduced interest received on time deposits of MMUS$ 0.1.
Financing activities generated positive net cash flows of MMUS$ 111.5 for the year ended December 31, 2019, which includes IFRS 16 reclassifications of MMUS$ 32.6 discussed previously in the operating cash flow section. Excluding that reclassification, financing cash flows for this year would have produced positive net cash flows of MMUS$ 144.1, compared to the negative cash flow of MMUS$ 5.1 recorded during the same period last year, which represents a positive change of MMUS$ 149.2, explained mainly by funds from the bond issued of MMUS$ 100.0, the bridge financing provided by the parent company Quiñenco of MMUS$ 30 and the loan from Banco Consorcio for MMUS$ 35.0, used to finance the purchase of additional shares of HLAG in 2019, and to subsequently obtain a 30% interest in HLAG in January 2020, as indicated above, partially offset by amortization of principal owed on the outstanding loan from Banco Itaú for MMUS$ 10.0 and an increase in interest and other payments of MMUS$ 5.8.
2019 Annual Report 229 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
2. MARKET ANALYSIS
A) CONTAINER SHIPPING SEGMENT
The Company participates in the container shipping business through its investment in HLAG (accounted for as a joint venture using the equity method). As of December 31, 2019, it has a 27.79% interest, which it subsequently increased to nearly 30% in January 2020, as indicated in preceding sections. Although CSAV jointly controls HLAG together with two other shareholders, that joint venture has an independent management team that controls and manages its risks autonomously and in accordance with the standards of a publicly-listed and regulated company in Germany.
With that said, although the container shipping industry’s main indicators seem to have been evolving favorably in recent quarters, it continues to face a volatile, highly competitive market characterized by:
• WEAK GLOBAL ECONOMIC GROWTH
There is a direct relationship between global GDP and international trade in goods, which takes place mainly through ocean container shipping.
From 2016 to 2018, global GDP growth hovered steadily around 3.6%, while container volume growth evolved positively at a rate of 4.9% per year, higher than global GDP. In 2017, both of these indicators reported their highest annual growth since 2012.
TRENDS IN GLOBAL PRODUCTION 5.8% 6
5 4.6% 4.3%
4 3.3% 3.8% 2.9% 3 3.4% 3.6% Annual change (%) 2 2.4% 1.8% 1 World Seaborne Container Trade (%) Global GDP Growth (%)
Source: International Monetary Fund - Global Economic Prospects Jan-20, Clarkson Research Feb-20.
230 Compañía Sud Americana de Vapores S.A. However, in 2018 global GDP growth started to slow, affected primarily by the complex worldwide economic conditions that began mid- year and continued and intensified in 2019, related mostly to trade tensions between the United States and China.
Under such conditions, container volume growth was impacted since it is highly linked to outlooks for global economic growth, reflected in year-end projections for the shipping industry and global GDP for 2019, which reached their lowest levels since the 2009 crisis. These trends show high weakness and volatility in global growth.
In its January 2020 report, the International Monetary Fund (IMF) forecasted recuperating global GDP growth in 2020 of 3.3%. Container shipping demand is projected to grow 2.4% in 2020, linked to stronger global growth, although at a lower rate. Therefore, a recovery scenario is forecast for both growth indicators, albeit at moderate levels, as they still continue to depend on favorable news regarding U.S.-China trade negotiations and progress on a Brexit agreement.
• SUPPLY ADJUSTED TO DECELERATING DEMAND
Growth in supply over the next few years can be measured by the total transport capacity of vessels under construction at shipyards with respect to the total fleet, which represents the capacity that will be incorporated into the operative fleet within the next two to three years—the average construction and delivery time for vessels. In addition, the number of scrapped vessels must also be deducted from this growth.
Over the last few years, this indicator has evolved positively, with orderbook levels accounting for 10.5% of the global fleet as of December 31, 2019, within historical minimum levels.
EVOLUTION OF ORDERBOOK-TO-FLEET
25 70% 60% Orderbook / Fleet 20 50% 15 40% 10 30% 20% Millions of TEU 5 10% 0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Fleet Orderbook Orderbook-to-Fleet Ratio
Source: Clarkson Research Feb-20.
2019 Annual Report 231 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
This positive trend has been developing since the 2009 crisis thanks to shipping companies seeking joint operating agreements, operating alliances along the most important routes and greater industry consolidation through mergers and acquisitions. Through these measures, they have achieved greater efficiency in the use of resources and a more orderly growth plan that is consistent with the collective needs of the global alliances, which has encouraged greater rationalization in vessel construction and subsequent positioning.
The current orderbook level represents approximate supply growth for the next two to three years of around 4%, which, considering a useful life of 25 years for most vessels, corresponds almost exclusively to fleet renewal. However, vessel scrapping, the indicator that reflects the fleet renewal rate, has remained low—at around 1%—for the past couple of years. Consequently, based on the current vessel scrapping level over the figure for annual supply growth estimated above, we expect net supply growth of around 3%, which is more closely aligned with less dynamic demand for transport as analyzed in the previous section, although it still applies some pressure on growth of supply capacity.
In addition, the container shipping industry has organic tools to manage its operating capacity, which are used broadly by the main global shipping companies and alliances. Thanks to this improved supply-demand balance in recent years, these tools have recovered their effectiveness in offsetting deviations in equilibrium conditions. These measures call for reducing vessel speeds, suspending voyages, increasing idle fleets and even closing or restructuring transport services, as well as scrapping unused vessels.
Idle fleet is another sensitive indicator that reflects supply-demand balance and the processes developed by the industry. This indicator remained high from late 2015 until mid-2017 due to the opening of the expanded Panama Canal in July 2016. As a result, a large number of Panamax vessels (the largest size that could sail through the former canal) were repositioned. Coupled with an important number of large, high-efficiency vessels delivered in 2014 and 2015, this subsequently led to scrapping of smaller vessels. During this global fleet repositioning process, vessel scrapping exceeded 3%, which is high for vessel scrapping, with the 2016 and 2017 figures being the first and third highest levels ever recorded for this indicator.
Afterwards, from mid-2017 to mid-2019, the idle fleet stayed at controlled levels, which is explained by the industry’s strong scrapping efforts in prior years, and by the incorporation of part of the idle fleet into the industry’s new service configuration when the new global alliances began operating in April 2017, albeit with a limited increase because of the drop in charter rates due to diminished outlooks for activity levels as described above. This was then offset by reactivating part of the idle fleet to cover positions of vessels that would be out of service for scrubber retrofits over the next few months in order to comply with the new regulation standards for “IMO 2020” fuels that took effect in January 2020 to reduce sulfide air emissions.
232 Compañía Sud Americana de Vapores S.A. TRENDS IN IDLE FLEET 1600 16% 1400 14%
1200 12% % of Total Fleet 1000 10% 800 8% 600 6% 400 4%
Thousands of TEU 200 2% 0 0% 2015 2016 2017 2018 2019 Idle Fleet % of Total Fleet Source: Alphaliner - Monthly Report Feb-20
Therefore, as these vessels are docked for scrubber retrofits, during which time the ship is considered “inactive” or “out of service,” this indicator goes up, as observed since mid-2019. Excluding this effect on the out-of-service fleet, there has not been a relevant increase in this indicator, which has remained steady since mid-2017, thanks to a better supply and demand balance.
Furthermore, the new global fuel regulations, and the higher prices of the new fuel, could accelerate disuse and subsequent recycling of vessels in 2020 and 2021 with inefficient fuel consumption that lack the technical capacity for scrubber retrofits. Currently, the idle fleet corresponds mainly to vessels of between 1,000 and 5,000 TEUs.
• STIFF COMPETITION AND LOW PROFITABILITY IN THE SHIPPING MARKET
Thanks to the more balanced relationship between supply and demand, decreases in the orderbook and vessel deliveries and the 2017 start of operations of the major operating alliances, within the last three years the Shanghai Containerized Freight Index (SCFI) has been more stable than the high variable levels seen in 2015 and 2016, during which time it reported a record low. Also, in recent years, there has been clearer evidence of the seasonal nature of demand for container shipping services, which rises in the peak season— normally between June and September—and falls during slack season—normally the first few months of the year.
2019 Annual Report 233 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
However, considering the effect of fuel prices, where an upward trend, albeit moderate, has been observed since 2016, ex-bunker freight rates (net of fuel costs) with which companies must cover all other operating and finance costs, continue to be relatively similar to times of greater crisis and less than levels at which the industry could consider a sustainable equilibrium to obtain a suitable return on its assets.
The area in gray in the chart below approximates the ex-bunker margin, understanding that an increase in the margin could place companies in a better position for covering all expenses and attaining profits, a scenario that has still not been solidly achieved by an important percentage of the industry.
EVOLUTION OF SCFI - IFO 380 MARGIN
1.200
1.000
800
600 Average Average Average Average 400 Margin = 706 Margin = 674 Margin = 671 Margin = 625 Average Margin = 564 200
0 jul-17 jul-19 jul-15 jul-16 jul-18 jan-17 jan-19 jan-15 jan-16 jan-18 nov-17 sep-17 jan-20 nov-19 nov-15 nov-16 sep-19 sep-15 sep-16 nov-18 sep-18 mar-17 mar-19 mar-15 mar-16 mar-18 may-17 may-19 may-15 may-16 may-18
SCFI - IFO 380 (3.5%) Margin SCFI * IFO 380 (3.5%) ** VLSFO (0.5%)**
* Shanghai Containerized Freight Index [USD/TEU]. ** Average price of one tonne of bunker in Rotterdam, considering a consumption factor of 0,4 tons per TEU [USD/TEU]
Source: Shanghai Shipping Exchange, Index of average fuel price (IFO 380 and VLSFO at the Port of Rotterdam).
234 Compañía Sud Americana de Vapores S.A. Regarding the recent evolution of these indicators, the chart illustrates that the average margins observed from late 2018 to mid-2019 are higher than the same period last year, partially improving the industry’s operating conditions. However, during the second half of 2019 there was a lower average margin with respect to the same period last year, which was partly offset by the drop in fuel prices when one supplier liquidated inventory in anticipation of the new regulations that took effect January 1, 2020.
• HIGH VOLATILITY AND UNCERTAINTY FOR MAIN INPUT
In the shipping industry, fuel is one of the main inputs for logistical operations. Due to its significant influence on operating costs, fuel prices are customarily indexed to freight rates in contracts with shipping customers.
As for historical trends, from 2011 until late 2014 the price of fuel remained very high but relatively stable. Afterwards, until late 2015, there was a sharp drop in this input, reaching a record low. However, since early 2016, there has been a moderate but continuous increase in fuel prices, managing to recover a large part of ground lost in late 2014 by late 2018, applying constant pressure on operating costs and shipping rates considered to be in equilibrium.
Since that date, fuel prices have been highly volatile, especially in late 2018, and then exhibited a marked downward trend during the second half of 2019. This stemmed essentially from decreased estimated demand for this fuel in the short term and the effect of suppliers liquidating it to make way for “IMO 2020”—the new sulfide air emissions regulations for the shipping industry. These new rules mandate worldwide use of fuel with a maximum sulfur content of 0.5% starting January 2020, far below the 3.5% sulfur content of fuels currently used on long ocean voyages.
However, this benefit is temporary since it is expected to increase operating costs for the shipping industry, due to the higher price of the new, low-sulfur product, which is more refined than the regular IFO 380 used. The price of VLSFO (very low sulfur fuel oil) was relatively similar to the price of IFO 380 as of late 2018, prior to the effects of the new regulations, although there is currently heightened uncertainty as to how it will evolve.
Therefore, the new environmental measures are leading the industry towards another change process, which will involve testing, evaluations and possible investment plans to comply with the new regulations in an efficient and sustainable manner. For the time being, these measures are not very prevalent in the total fleet.
2019 Annual Report 235 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
• CONSOLIDATION PROCESS SEEKING EFFICIENCIES
Even though the container shipping industry still boasts a large number of players, especially in the segment of smaller-sized companies, a growing trend towards industry consolidation has been seen in the past few years.
The important wave of mergers and acquisitions in the industry began with the combination of the container shipping businesses of CSAV and HLAG, in 2014, which subsequently merged with the Arabic shipping line UASC in May 2017, positioning HLAG from that point forward among the five largest shipping companies in the world by hauling capacity.
Other important deals include the acquisition of the Chilean shipping line CCNI by German company Hamburg Süd and the subsequent purchase of Hamburg Süd by the Danish firm Maersk, which was concluded in November 2017, although they continue to operate under independent structures. In addition, to complete this acquisition Maersk had to dispose of its cabotage business in Brazil due to its high concentration in this business. That division was sold to CMA CGM, the French shipping line that previously purchased the Japanese company APL.
The main Asian shipping companies also engaged in important mergers and acquisitions. China Shipping merged with another Chinese firm, COSCO, which was subsequently acquired by Hong Kong’s Orient Overseas Container Lines (OOCL) in July 2018. Furthermore, an association to merge the three largest Japanese lines (K-Line, NYK and MOL) into one entity was announced and began to operate jointly under the name Ocean Network Express (ONE) in 2018. However, despite completing the acquisition of OOCL and initiating operations at ONE, these companies are still independent entities and have not yet harnessed the potential synergies of full integration. This demonstrates that the large size of the shipping companies involved in these transactions lends greater complexity, higher costs and reduced efficiencies to such processes, generating a decreasing return from the benefits obtained from greater operating scales.
Another important development during this consolidation process was the bankruptcy and discontinuation of services of Hanjin Shipping in 2016, the seventh largest container shipping company by hauling capacity as of that date and the largest Korean line. This is the largest bankruptcy case in the history of the container shipping industry.
Following all these business combinations and Hanjin’s bankruptcy, by the end of 2018, the ten largest global shipping operators accounted for 83% of installed capacity, while the five largest had 65%.
Although no new consolidations have been announced for the next few years, efforts continue for all industry players, now mainly focused on effectively integrating and generating post-merger synergies. The largest global operators have already reached sizes that will enable them to generate economies of scale, with the consequent effect on their costs, fleet optimization and a wider scope for their service network.
236 Compañía Sud Americana de Vapores S.A. Likewise, in recent years joint operating agreements and operating alliances have expanded in order to improve customer service levels and broaden geographic coverage, while generating very significant economies of scale and network economies. These initiatives have been very important and have led to the formation of major global operating alliances.
The current structure of alliances announced in 2016, which began to operate globally along most trades in the second quarter of 2017, account for almost 90% of total shipping capacity along the industry’s main long-haul, east-west routes. The main changes in this reorganization process were the dissolution of the Ocean Three, G6 and CKYHE alliances to give rise to two new alliances: Ocean Alliance, led by CMA CGM and COSCO, and THE Alliance, of which HLAG is a member, as well as the 2M alliance between Maersk and MSC. During the second quarter of 2019 HMM’s integration into THE Alliance was confirmed, which will take effect in April 2020 for a period of 10 years.
In summary, all container shipping industry players continue operating in challenging conditions, albeit with significant improvements in some key indicators that substantiate better outlooks. The improvement in fleet indicators in recent years lays a foundation for projections of future stability in supply-demand balance, despite downgrades in economic growth estimates and the resulting drop in activity expected for the maritime shipping industry.
Progress has been partly reflected in improved operating results from many industry players in 2019 versus 2018. However, the new environmental regulation IMO 2020 cultivates uncertainty with respect to the degree of impact the changes will have, especially regarding an imminent rise in the price of this input—the fuel of choice for more than 90% of the current fleet in 2020.
The industry, therefore, remains properly focused on the new paradigm of optimizing operating costs and boosting productivity, aiming for greater asset usage and more efficient fuel consumption stemming from the intensive consolidation process in recent years and collaborative operations through joint operating alliances and agreements. Currently, the technological change process is practically completed. All major operators and global alliances are shipping a very significant portion of their volumes in very large, efficient vessels. This explains, to a large extent, the decrease in new shipbuilding orders and the constant reduction in inventories of vessels under construction. This is especially important to deal with the cost pressures that a recovering market can bring, in the markets for both vessel charters and maritime and port services.
2019 Annual Report 237 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
B) OTHER TRANSPORT SERVICES SEGMENT
The vehicle transport business, like other areas of the shipping industry, is influenced by macroeconomic variables, local import market developments and changes in manufacturing countries. These factors all define demand for new vehicles and the need to transport these goods. After the 2008 financial crisis, global demand for vehicle transport plummeted by more than 30% in 2009, followed by a slow recovery until 2013, at which point it leveled out for several years.
Unlike demand, supply of transport services, measured by total global shipping capacity, was practically unchanged after the crisis and maintained a high rate of growth from then until 2016, resulting in excess supply during that period. However, the significantly lower growth in demand during this period sparked a process of greater supply rationalization, generating low vessel investment worldwide that led to low orderbook levels and rising scrapping rates over the past few years.
CSAV mainly transports vehicles from Asia, Europe, the USA and the east coast of South America to markets along the west coast of South America, with the largest volume going to Chile and Peru. Starting in 2016 these markets were positively affected by more dynamic economic activity and also by improved consumer expectations regarding future economic conditions, with a very strong impact on vehicle imports and sales. However, growth in demand slowed slightly in 2018 and more sharply throughout 2019, a year in which local economic conditions produced a strong contraction in demand for vehicles, thus reducing imports.
VEHICLE SALES (CHILE AND PERU)
1.000 20% 900 11.8% 8.4% 7.8% 800 3.7% 10% 700 -8.9% -7.0% 0% 53 45 -12.1% 34 600 32 33 -10% 39 500 41 -20% 400 548 567 -30%
Thousands of Vehicles 525 526 300 503 440 460 200 -40% 100 -50% 2013 2014 2015 2016 2017 2018 2019 Light Vehicles Heavy Vehicles Total Annual Growth (%)
Source: ANAC and AAP
238 Compañía Sud Americana de Vapores S.A. In Chile, CSAV’s main market, new vehicle sales fell 10.3% in 2019 with respect to the prior year, although it marked the second-best year since 2014. As of December 31, 2019, a total of 374,045 light vehicles (combustion, hybrid and electric) were sold, equivalent to a drop of 10.5% with respect to last year. In the truck segment, 12,859 units were sold, which represents a decrease of 8.3% in relation to 2018. The bus segment sold 3,483 units, up 15.3% in comparison to the prior year, as a result of the renewal of the Transantiago fleet. However, these vehicles are mainly manufactured regionally and transported by land (Source: ANAC).
In Peru, CSAV’s second largest market, sales of light vehicles in 2019 were up 2.4%, to 151,997 units. Truck sales were down by 4.3% with respect to last year, with 16,650 units sold during the period (Source: SUNARP-AAP).
In aggregate, CSAV’s two main markets reported a drop in vehicle sales of 7.0% for the year ended December 31, 2019. However, excluding 2018, the 2019 figure is the highest seen since 2014. To this we must add the continued upward trend in vessel charter rates observed since 2018, due to greater fleet rationalization and rising fuel prices, which generated a year of greater pressure for the business.
2019 Annual Report 239 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
3. ANALYSIS OF MARKET RISK
As described in Note 5 to these Consolidated Financial Statements, CSAV’s investment in HLAG is presently its primary asset (86% of total assets as of December 31, 2019). Therefore, although the market risks of the container shipping business are not directly reflected in the Company’s cash flows, they are indirectly reflected since they affect HLAG’s results and, consequently, the value of CSAV’s investment in that joint venture, as well as expected cash flows from dividends and for capital needs. Therefore, even though CSAV contributed its entire container shipping business to HLAG through the business combination completed in 2014, the main business risks continue to be related to the container shipping industry.
As a result, it is important to mention that HLAG has an independent management team that controls and manages its risks autonomously and in accordance with the standards of a publicly-listed and regulated company in Germany.
The principal risks that the Company faces from both the container shipping segment and its direct operating segments (other transport services segment) stem mainly from the possibility of deteriorating demand for ocean transport, an increase in the supply of transport capacity, a drop in freight rates and a rise in oil prices. Other risks that may affect the industry include heightened competition for market share (volumes), asset obsolescence (technological risk), environmental risks and potential regulatory changes.
On the demand side, for the container shipping business risk comes primarily from global economic conditions and the impact of global economic slowdown. The latest figures published by the International Monetary Fund (IMF) forecast weaker global growth than prior years but no material change in current growth conditions, and do not predict changes involving significant short-term risks.
On the supply side, there is the risk that new ship construction causes shipping supply to exceed future demand, thus exacerbating the imbalance between supply and demand and putting additional pressure on freight rates, even though container ship construction levels are currently at historical lows. In addition, the idle fleet has decreased considerably over the high levels seen in late 2016, due to vessel scrapping and the re-incorporation of many vessels into the currently operated fleet. These factors have reduced the risk of a significant increase in the supply-demand imbalance within the industry, given the possibility of re-incorporating the idle fleet into the operated fleet.
240 Compañía Sud Americana de Vapores S.A. On the other hand, the main risk in the vehicle transport business stems from the weakness of key markets for CSAV (west coast of South America) and global balance of supply and demand for roll-on/roll-off (“RO-RO”) vessels. CSAV is a niche operator in this business.
In addition, fuel prices have been increasing in recent years and continue to show certain volatility with respect to their future evolution. In order to mitigate this risk, part of the freight sales in the vehicle transport business is indexed to variations in fuel prices.
Risk from receivables is related largely to receivables from customers in the vehicle transport business. These customers have mainly long-term contracts, which are also governed by a credit policy, payment management and a rigorous doubtful accounts policy. Another minor portion of receivables is related to slot and vessel charters to other shipping lines. In addition to the aforementioned policies and management efforts, in many cases the Company also charters services from these same shipping lines, thus minimizing their net exposure.
Regarding the risk of interest rate fluctuations, as of December 31, 2019, only part of CSAV’s financial liabilities are currently at variable rates indexed to the Libor rate. The Company does not have any derivatives to hedge variations in the Libor rate.
As for exchange rate volatility, most of the Company’s income and expenses are denominated in US dollars. However, the Company has certain assets and liabilities in other currencies, which are detailed in Note 33 to the Consolidated Financial Statements. As of December 31, 2019, CSAV does not have any foreign currency hedges. It manages the risk of exchange rate changes on working capital by periodically converting any balances in local currency that exceed payment requirements in that currency into US dollars.
2019 Annual Report 241 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
4. FINANCIAL RATIOS
As of December 31, 2019 and 2018, the main financial indicators are as follows:
A) LIQUIDITY RATIOS
Liquidity Ratios As of December 31, 2019 As of December 31, 2018
Current Assets Current Liquidity Ratio = 0.672 1.579 Current Liabilities
Current Assets - Inventory Acid-Test Ratio = 0.655 1.424 Current Liabilities
• Current Liquidity: This ratio decreased in comparison to December 2018 since the increase in current liabilities (247% / MMUS$ 76.8) was larger than the increase in current assets (48% / MMUS$ 23.3). The increase in current liabilities as of December 31, 2019, can be explained mainly by the loan granted by its parent company Quiñenco of MMUS$ 30 during the third quarter of 2019 and another from Banco Consorcio for MMUS$ 35 during the fourth quarter of 2019, as well as the increase of MMUS$ 7.9 from adopting IFRS 16 “Leases”, which generated a lease liability in current financial liabilities, as explained previously in this report. The increase in current assets is attributable mostly to an increase in cash and cash equivalents from the bridge loan obtained from Banco Consorcio of MMUS$ 35.0 during the fourth quarter of 2019 to finance the acquisition of an additional interest in HLAG in January 2020, as mentioned above. Another contributing factor was the decrease in other non-financial assets, explained by the implementation of IFRS 16. All these increases are explained in point 1 letter a) of this report.
• Acid-Test Ratio: This ratio decreased in comparison to December 2018 since the increase in current liabilities (247% / MMUS$ 76.8) was larger than the increase in current assets less inventory (60% / MMUS$ 26.4). Both increases (in assets and financial liabilities) are explained in the section for the previous ratio, while inventory decreased from one year to the next because of decreased operating activity in the vehicle transport business.
242 Compañía Sud Americana de Vapores S.A. B) INDEBTEDNESS RATIOS
Indebtedness Ratios As of December 31, 2019 As of December 31, 2018
Total Liabilities Leverage = 0.132 0.060 Equity
Current Liabilities Short-Term Leverage = 0.368 0.244 Total Liabilities
Non-Current Liabilities Long-Term Leverage = 0.632 0.756 Total Liabilities
Net Income before Taxes Financial Expense Coverage = Less Finance Costs 12.629 3.097 Finance Costs
• Leverage: This ratio fell with respect to December 2018, largely because the increase in total liabilities (MMUS$ 165.5 / 130% chg.), as explained in section 1 a) of this report, was greater than the increase in equity (MMUS$ 92.0/ 4% chg.), mainly because of variations in the investment in HLAG, as explained above.
• Short-Term Leverage: This ratio decreased with respect to December 2018, because the increase in current liabilities (MMUS$ 76.8 / 247% chg.), was greater than the increase in total liabilities (MMUS$ 165.5 / 130% chg.), explained in section 1a) of this report.
• Long-Term Leverage: In contrast to the previous ratio, this indicator increased with respect to December 2018, because the increase in non-current liabilities (MMUS$ 89.5 / 93% chg.), was less than the increase in total liabilities (MMUS$ 165.5 / 130% chg.), explained in section 1a) of this report.
• Financial Expense Coverage: This ratio improved in relation to December 2018 because the increase in net income before taxes net of finance costs in 2019 (MMUS$ 120.6 / 703% chg.) was greater than the increase in finance costs (MMUS$ 5.4 / 97% chg.) with respect to December 2018. Both effects are explained in section 1 b) of this report.
2019 Annual Report 243 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Annual Analysis Based on the Consolidated Financial Statements as of December 31, 2019
C) PROFITABILITY RATIOS
Profitability Ratios As of December 31, 2019 As of December 31, 2018
Net Income Attributable to Owners of Return on Equity = the Company 0.0572 0.0086 Average Equity
Net Income Attributable to Owners of Return on Assets = the Company 0.0522 0.0081 Average Assets
Dividends Paid in Dividend Yield = Last 12 Months 0.0000 0.0000 Market Value of Stock
Net Income Attributable to Owners of Earnings per Share = the Company 0.0034 0.0005 Number of shares
Market Value of Stock (CLP) = 27.4 19.7
* Operating assets: Total assets less deferred taxes and intangible assets. Average: (Value as of period end + Value 12 months prior to period end) / 2
• Return on Equity: This ratio improved over December 2018, due to greater net income attributable to the owners of the company of MMUS$ 124.6 recorded for the year 2019 in comparison to net income of MMUS$ 18.2 for 2018 (MMUS$ 106.4 / 583% chg.), offset slightly by the increase in average equity (MMUS$ 53.4 / 3%).
• Return on Assets: This ratio improved in relation to December 2018, due to a larger net income attributable to the owners of the company, explained above (MMUS$ 106.4, / 583% chg.), offset slightly by greater average assets (MMUS$ 125.7 / 6% chg.).
• Dividend Yield: This ratio remained constant because no dividends were distributed in 2019 or 2018.
244 Compañía Sud Americana de Vapores S.A. • Earnings per Share: Earnings per share improved with respect to December 2018 because of improved results (MMUS$ 106.4 / 583% chg.), as explained in the first indicator in this subgroup of ratios. The total number of shares issued and subscribed did not vary.
• Market Value of Stock: The share value as of December 31, 2019, rose by 39% compared to December 2018.
D) ACTIVITY RATIOS
Activity Ratios As of December 31, 2019 As of December 31, 2018
Inventory Turnover = Fuel Costs 5.133 4.968 Average Inventories
Inventory Permanence = Average Inventories * 360 70.1 72.5 Fuel Costs
Average Inventories: (Inventory as of period end + Value 12 months prior to period end) / 2
• Inventory Turnover: This indicator increased with respect to December 31, 2018, as a result of a relatively greater reduction in average inventories (MMUS$ -0.6 / -16% chg.) with respect to the cost of fuel consumed (MMUS$ -2.6 / -13% chg.).
• Inventory Permanence: Since inventory turnover increased, permanence decreased in relation to December 2018, falling from 72.5 to 70.1 days.
2019 Annual Report 245 Summarized Subsidiary FINANCIAL STATEMENTS
246 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 247 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Summarized Subsidiary Financial Statements As of December 31, 2019
Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Financial Position of Subsidiaries (Panama) (Chile) (China) (Germany) As of December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Current assets 317 1,121 1,877 1,971 1,008 1,080 23 23 755,257 755,267 5,640 53
Non-current assets ------974 17 22 2,168,384 1,939,466
Total assets 317 1,121 1,877 1,971 1,008 1,080 23 997 755,274 755,289 2,174,024 1,939,519
Current liabilities 755,382 780,323 128 94 - 356 2,250 2,426 5 2,662 1,509,806 1,371,085
Non-current liabilities ------
Issued capital 383,678 358,477 5,000 5,000 1,000 1,000 3,550 3,550 493,258 490,600 84 84
Retained earnings (accumulated deficit) (1,138,697) (1,137,613) (3,251) (3,127) (1) (299) (5,777) (4,979) 262,004 262,020 (197,624) (324,598)
Other reserves (41) (61) - - 9 23 - - 7 7 861,758 892,948
Non-controlling interest (5) (4) - 4 ------
Total liabilities and equity 317 1,121 1,877 1,971 1,008 1,080 23 997 755,274 755,289 2,174,024 1,939,519
248 Compañía Sud Americana de Vapores S.A. Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Financial Position of Subsidiaries (Panama) (Chile) (China) (Germany) As of December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Current assets 317 1,121 1,877 1,971 1,008 1,080 23 23 755,257 755,267 5,640 53
Non-current assets ------974 17 22 2,168,384 1,939,466
Total assets 317 1,121 1,877 1,971 1,008 1,080 23 997 755,274 755,289 2,174,024 1,939,519
Current liabilities 755,382 780,323 128 94 - 356 2,250 2,426 5 2,662 1,509,806 1,371,085
Non-current liabilities ------
Issued capital 383,678 358,477 5,000 5,000 1,000 1,000 3,550 3,550 493,258 490,600 84 84
Retained earnings (accumulated deficit) (1,138,697) (1,137,613) (3,251) (3,127) (1) (299) (5,777) (4,979) 262,004 262,020 (197,624) (324,598)
Other reserves (41) (61) - - 9 23 - - 7 7 861,758 892,948
Non-controlling interest (5) (4) - 4 ------
Total liabilities and equity 317 1,121 1,877 1,971 1,008 1,080 23 997 755,274 755,289 2,174,024 1,939,519
2019 Annual Report 249 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Summarized Subsidiary Financial Statements As of December 31, 2019
Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Income of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Revenue - - - - - 19 ------
Cost of sales - - - - - (37) ------
Gross margin - - - - - (18) ------
Other income ------
Administrative expenses (11) (14) (115) (98) (54) (499) (3) (4) (10) (102) (268) (168)
Other expenses, by function ------
Other gains (losses) - 3 153 (101) 350 (60) 204 - - -
Net operating income (loss) (11) (11) 38 (199) 296 (577) 201 (4) (10) (102) (268) (168)
Finance income - - - 3 - 3 - - - - 37 -
Finance costs ------(26) (24) - - (42,168) (44,469)
Share of income (loss) of equity method associates and joint ventures ------(8) (2) 147,812 13,974
Exchange differences - (7) 1 (2) 2 (52) 1 1 4 1 21,561 55,512
Net income (loss) before taxes (11) (18) 39 (198) 298 (626) 176 (27) (14) (103) 126,974 24,849
Income tax benefit (expense) - - - 1 - - (974) - - - - -
Net income (loss) from continuing operations (11) (18) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) from discontinued operations (900) (659) ------
Net income (loss) for the year (911) (677) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) attributable to owners of the company (911) (677) 43 (199) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) attributable to non-controlling interest - - (4) 2 ------
Net income (loss) for the year (911) (677) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
250 Compañía Sud Americana de Vapores S.A. Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Income of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Revenue - - - - - 19 ------
Cost of sales - - - - - (37) ------
Gross margin - - - - - (18) ------
Other income ------
Administrative expenses (11) (14) (115) (98) (54) (499) (3) (4) (10) (102) (268) (168)
Other expenses, by function ------
Other gains (losses) - 3 153 (101) 350 (60) 204 - - -
Net operating income (loss) (11) (11) 38 (199) 296 (577) 201 (4) (10) (102) (268) (168)
Finance income - - - 3 - 3 - - - - 37 -
Finance costs ------(26) (24) - - (42,168) (44,469)
Share of income (loss) of equity method associates and joint ventures ------(8) (2) 147,812 13,974
Exchange differences - (7) 1 (2) 2 (52) 1 1 4 1 21,561 55,512
Net income (loss) before taxes (11) (18) 39 (198) 298 (626) 176 (27) (14) (103) 126,974 24,849
Income tax benefit (expense) - - - 1 - - (974) - - - - -
Net income (loss) from continuing operations (11) (18) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) from discontinued operations (900) (659) ------
Net income (loss) for the year (911) (677) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) attributable to owners of the company (911) (677) 43 (199) 298 (626) (798) (27) (14) (103) 126,974 24,849
Net income (loss) attributable to non-controlling interest - - (4) 2 ------
Net income (loss) for the year (911) (677) 39 (197) 298 (626) (798) (27) (14) (103) 126,974 24,849
2019 Annual Report 251 COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Summarized Subsidiary Financial Statements As of December 31, 2019
Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Equity of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Equity, opening balance (779,201) (645,121) 1,877 1,786 724 1,333 (1,429) (1,402) 752,627 752,729 568,434 548,602
Total comprehensive income (loss) (890) (677) 39 (197) 284 (574) (798) (27) (14) (103) 102,470 17,710
Equity issuance 25,201 ------2,658
Dividends ------
Increase (decrease) for other distributions to owners ------
Increase (decrease) due to transfers and other changes (175) (133,404) (167) 288 - (35) - - (2) 1 (6,686) 2,122
Other increases (decreases) in net equity ------
"Increase (decrease) for changes in interest in subsidiary that do not involve ------loss of control"
Equity, closing balance (755,065) (779,201) 1,749 1,877 1,008 724 (2,227) (1,429) 755,269 752,627 664,218 568,434
Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Cash Flows of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cash flows provided by (used in) operating activities 8 972 (69) (2,114) (51) (359) - - (6) (183) (225) (208)
Cash flows provided by (used in) investing activities - (1,343) - 1,388 ------(112,259) 1,749
Cash flows provided by (used in) financing activities ------117,991 (2,512)
"Net increase (decrease) in cash and cash equivalents before exchange rate 8 (371) (69) (726) (51) (359) - - (6) (183) 5,507 (971) effects"
Effect of exchange rate changes on cash and cash equivalents - 61 (1) - (13) (46) - - 80 (680)
Increase (decrease) in cash and cash equivalents 8 (310) (70) (726) (64) (405) - - (6) (183) 5,587 (1,651)
Cash and cash equivalents at beginning of year 14 324 80 806 1,069 1,474 1 1 8 191 53 1,704
Cash and cash equivalents at end of period 22 14 10 80 1,005 1,069 1 1 2 8 5,640 53
252 Compañía Sud Americana de Vapores S.A. Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Equity of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Equity, opening balance (779,201) (645,121) 1,877 1,786 724 1,333 (1,429) (1,402) 752,627 752,729 568,434 548,602
Total comprehensive income (loss) (890) (677) 39 (197) 284 (574) (798) (27) (14) (103) 102,470 17,710
Equity issuance 25,201 ------2,658
Dividends ------
Increase (decrease) for other distributions to owners ------
Increase (decrease) due to transfers and other changes (175) (133,404) (167) 288 - (35) - - (2) 1 (6,686) 2,122
Other increases (decreases) in net equity ------
"Increase (decrease) for changes in interest in subsidiary that do not involve ------loss of control"
Equity, closing balance (755,065) (779,201) 1,749 1,877 1,008 724 (2,227) (1,429) 755,269 752,627 664,218 568,434
Tollo Shipping Co. S.A. and Norgistics Holding S.A. and Norgistics (China) Limited CSAV Germany Container Holding Compañía Naviera Rio Blanco S.A. Corvina Shipping Co. S.A. Subsidiaries Subsidiaries (Shenzhen) GmbH (Chile) (Panama) Summarized Statements of Cash Flows of Subsidiaries (Panama) (Chile) (China) (Germany) For the years ended December 31, 2019 and 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$ ThUS$
Cash flows provided by (used in) operating activities 8 972 (69) (2,114) (51) (359) - - (6) (183) (225) (208)
Cash flows provided by (used in) investing activities - (1,343) - 1,388 ------(112,259) 1,749
Cash flows provided by (used in) financing activities ------117,991 (2,512)
"Net increase (decrease) in cash and cash equivalents before exchange rate 8 (371) (69) (726) (51) (359) - - (6) (183) 5,507 (971) effects"
Effect of exchange rate changes on cash and cash equivalents - 61 (1) - (13) (46) - - 80 (680)
Increase (decrease) in cash and cash equivalents 8 (310) (70) (726) (64) (405) - - (6) (183) 5,587 (1,651)
Cash and cash equivalents at beginning of year 14 324 80 806 1,069 1,474 1 1 8 191 53 1,704
Cash and cash equivalents at end of period 22 14 10 80 1,005 1,069 1 1 2 8 5,640 53
2019 Annual Report 253 Statement of Responsibility The directors and the Chief Executive Officer signing this Annual Report for the year ended December 31, 2019, take responsibility under oath for the accuracy of all information provided in this Annual Report in compliance with General Standard 30 issued by the Financial Market Commission.
Francisco Pérez Mackenna Andrónico Luksic Craig Chairman Vice Chairman Chilean ID number: 6.525.286-4 Chilean ID number: 6.062.786-K
Alberto Alemán Zubieta Christian Blomstrom Bjuvman Director Director Chilean ID number: 48.214.110-2 Chilean ID number: 10.672.019-3
Hernán Büchi Buc Arturo Claro Fernández Director Director Chilean ID number: 5.718.666-6 Chilean ID number: 4.108.676-9
José De Gregorio Rebeco Óscar Hasbún Martínez Director Chief Executive Officer Chilean ID number: 7.040.498-2 Chilean ID number: 11.632.255-2
254 Compañía Sud Americana de Vapores S.A. 2019 Annual Report 255 DESIGN: • BAOBAB Diseño Limitada
PHOTOGRAPHS: • CSAV archives • Hapag-Lloyd archives
Compañía Sud Americana de Vapores S.A.
COMPAÑÍA SUD AMERICANA DE VAPORES S.A. Hendaya 60, Office 1401, Santiago - Chile (56 2) 2588 6047 www.csav.com